Government spending under non-separability: a theoretical analysis
AbstractWe derive analytic implicit form conditions for the qualitative analysis of government spending multipliers and the optimal level of government spending in presence of non-separability between private and public components of aggregate demand. Using the simplest neo-classical flexible price model with no capital accumulation, we show that Edgeworth dependence is not a suitable condition to automatically assess the signs of the consumption and output multipliers, for which a more complex analysis must be carried out. We propose a detailed investigation of the form and the characteristics of the involved utility functions, which are crucial to such evaluation. We also show that if Edgeworth complementarity is strong enough, a public spending stimulus can raise at the same time private consumption and real activity. In order to reconcile our general framework with existing literature, we discuss recent examples of non-separable functional forms from the standpoint of our results, and argue that their consistency relies on specific assumptions about steady-state points. Copyright Springer-Verlag Berlin Heidelberg 2014
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Bibliographic InfoArticle provided by Springer in its journal International Review of Economics.
Volume (Year): 61 (2014)
Issue (Month): 1 (April)
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Web page: http://www.springer.com/economics/journal/12232
Other versions of this item:
- L. Marattin & A. Palestini, 2010. "Government Spending Under Non-Separability: a Theoretical Analysis," Working Papers wp722, Dipartimento Scienze Economiche, Universita' di Bologna.
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
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