Government Debt and Excess Sensitivity of Private Consumption: Estimates from OECD Countries
AbstractThis article investigates the role of government debt in the degree of excess sensitivity of private consumption to current disposable income. Because this type of excess sensitivity is generally attributed to liquidity constraints, this amounts to a test of the impact of government debt on the amount of credit extended to individuals. Controlling for financial liberalization we find that, for a panel of OECD countries in the 1990s, a high government debt leads to more excess sensitivity. This result supports the idea that a high government debt induces lenders to tighten credit conditions. Our findings survive several robustness checks. (JEL E21, E62, C33) Copyright 2004, Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 42 (2004)
Issue (Month): 4 (October)
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Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
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- G. Peersman & L. Pozzi, 2004. "Determinants of consumption smoothing," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/231, Ghent University, Faculty of Economics and Business Administration.
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- Berben, Robert-Paul & Brosens, Teunis, 2007. "The impact of government debt on private consumption in OECD countries," Economics Letters, Elsevier, vol. 94(2), pages 220-225, February.
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