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Private and public consumption: substitutes or complements?
[Temporary and permanent government spending in an open economy]

Author

Listed:
  • João Tovar Jalles
  • Georgios Karras

Abstract

This article investigates the degree to which government consumption expenditures substitute or complement private consumption, one of the most important (and most overlooked) determinants of the fiscal multiplier. Using panel datasets from a large number of heterogeneous economies over 1970–2016, we find that private and government consumption are best described as complementary both in the aggregate and for nine different categories of government spending we consider. The degree of complementarity, however, differs substantially across government spending categories, being the highest for education, recreation, and housing in the Organisation for Economic Co-Operation and Development (OECD); and for Public Order and Recreation in the non-OECD. Our estimates imply that fiscal multiplier values in those spending categories are substantially higher than in categories that are less (or not at all) complementary with private consumption.

Suggested Citation

  • João Tovar Jalles & Georgios Karras, 2022. "Private and public consumption: substitutes or complements? [Temporary and permanent government spending in an open economy]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 805-819.
    • Handle: RePEc:oup:oxecpp:v:74:y:2022:i:3:p:805-819.
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    File URL: http://hdl.handle.net/10.1093/oep/gpab049
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    Citations

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    Cited by:

    1. Abiad (ADB), Abdul & Furceri (IMF and University of Palermo), Davide & Topalova (IMF), Petia, 2016. "The macroeconomic effects of public investment: Evidence from advanced economies," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 224-240.
    2. Zhang, Zuomin & Dai, Ling, 2023. "The bank loan distribution effect of government spending expansion: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 89(C).
    3. Carmignani, Fabrizio, 2022. "The electoral fiscal multiplier," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 938-945.

    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - 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; Modern Monetary Theory
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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