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Are Consumption and Government Expenditures Substitutes or Complements? Morishima Elasticity Estimates from the Fourier Flexible Form

Author

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  • Adrian R. Fleissig
  • Robert J. Rossana

    (Department of Economics, 2074 FAB, Wayne State University, Detroit, MI 48202.)

Abstract

This article provides estimates of Morishima elasticities of substitution between private consumption expenditures (nondurable goods, services, and the stock of durable goods) and government expenditures (federal defense expenditures, federal nondefense expenditures, and state and local expenditures), finding consistent evidence that private consumption and government expenditures are net Morishima substitutes. Elasticities of substitution vary over our sample period, estimated elasticities are generally asymmetric, and short-run elasticity estimates differ from unity. In the long run, substitution elasticities remain asymmetric and vary over time. Our estimates are free of arbitrary functional form assumptions that can bias statistical inferences arising from our optimization model. Copyright 2003, Oxford University Press.

Suggested Citation

  • Adrian R. Fleissig & Robert J. Rossana, 2003. "Are Consumption and Government Expenditures Substitutes or Complements? Morishima Elasticity Estimates from the Fourier Flexible Form," Economic Inquiry, Western Economic Association International, vol. 41(1), pages 132-146, January.
    • Handle: RePEc:oup:ecinqu:v:41:y:2003:i:1:p:132-146
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    Cited by:

    1. D. Aristei & Luca Pieroni, 2008. "Cointegration Rank Test and Long Run Specification: A Note on the Robustness of Structural Demand Systems," Working Papers 0809, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    2. Serletis, Apostolos & Xu, Libo, 2021. "Consumption, Leisure, And Money," Macroeconomic Dynamics, Cambridge University Press, vol. 25(6), pages 1412-1441, September.
    3. Pieroni, Luca, 2009. "Does defence expenditure affect private consumption? Evidence from the United States," Economic Modelling, Elsevier, vol. 26(6), pages 1300-1309, November.
    4. Takeo Hori & Noritaka Maebayashi, 2013. "Indeterminacy and utility-generating government spending under balanced-budget fiscal policies," Discussion Papers in Economics and Business 13-13, Osaka University, Graduate School of Economics.
    5. Serletis, Apostolos & Shahmoradi, Asghar, 2010. "Consumption effects of government purchases," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 892-905, September.
    6. Pieroni, Luca & Lorusso, Marco, 2013. "The Role of Fiscal Policy Components in Private Consumption: a Re-examination of the Effects of Military and Civilian Spending," MPRA Paper 47878, University Library of Munich, Germany.
    7. Luca Pieroni, 2007. "How Strong is the Relationship between Defence Expenditure and Private Consumption? Evidence from the United States," Working Papers 0705, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

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