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Estimating the substitutability between private and public consumption: the case of Spain, 1960--2003

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Author Info
Vicente Esteve
Juan Sanchis-Llopis

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Abstract

This paper examines the relationship between private and public consumption using Spanish data over the period 1960--2003, using a two-good permanent-income model. We extend previous analysis addressing the question of whether this relationship is stable over time, or exhibits a structural break allowing the instability to occur at an unknown point in time. Our empirical results indicated the existence of a long-run relationship between private and public consumption. We also detect a structural change of regime shift in the cointegration regression around the time of 1973--74. Finally, the estimated intratemporal and intertemporal elasticities of substitution between the two types of expenditure suggest that private and public consumption in Spain are Edgeworth-Pareto substitutes.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 20 (November)
Pages: 2327-2334
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Handle: RePEc:taf:applec:v:37:y:2005:i:20:p:2327-2334

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