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The consumption multiplier of government spending: the role of substitutability between government spending and leisure

Author

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  • Eguchi, Masataka
  • Hosoya, Yuhki
  • Yamada, Mai

Abstract

This paper presents an alternative explanation for the positive consumption response to government spending that is empirically observed, based on a non-separable utility function. We find that consumption can respond positively when leisure and government spending are substitutes.

Suggested Citation

  • Eguchi, Masataka & Hosoya, Yuhki & Yamada, Mai, 2024. "The consumption multiplier of government spending: the role of substitutability between government spending and leisure," Economics Letters, Elsevier, vol. 235(C).
    • Handle: RePEc:eee:ecolet:v:235:y:2024:i:c:s0165176524000417
    DOI: 10.1016/j.econlet.2024.111557
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    More about this item

    Keywords

    Fiscal multiplier; Non-separable preferences; Substitutability; Complementarity;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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