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Fiscal Policy And The Composition Of Private Consumption: Some Evidence From The U.A. And Canada

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  • Malley Jim
  • Molana Hassan

Abstract

This paper develops a generalized version of the life-cycle model in which consumers' preferences are defined over components of consumption and are affected by the level of public expenditure on goods and services. The model implies that the crowding out of private consumption could in fact be a direct demand side phenomenon caused by the way preferences respond to a change in public spending. Evidence from U.S. and Canadian data for the period 1935-1995 confirms this theoretical conjecture as well as implying that in both countries demand for durable goods is likely to show relatively large swings which may undermine the stability of the sector and harm the supply side. [E22. E62].

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 16 (2002)
Issue (Month): 1 ()
Pages: 139-158

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Handle: RePEc:taf:intecj:v:16:y:2002:i:1:p:139-158

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  1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  2. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1997. "Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables," Cambridge Working Papers in Economics 9706, Faculty of Economics, University of Cambridge.
  3. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March.
  4. Modigliani, Franco & Sterling, Arlie, 1986. "Government Debt, Government Spending and Private Sector Behavior: Comment," American Economic Review, American Economic Association, vol. 76(5), pages 1168-79, December.
  5. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  6. Martin Feldstein, 1980. "Government Deficits and Aggregate Demand," NBER Working Papers 0435, National Bureau of Economic Research, Inc.
  7. James G. MacKinnon, 1992. "Approximate Asymptotic Distribution Functions for Unit Roots and Cointegration Tests," Working Papers 861, Queen's University, Department of Economics.
  8. Molana, H, 1991. "The Time Series Consumption Function: Error Correction, Random Walk and the Steady-State," Economic Journal, Royal Economic Society, vol. 101(406), pages 382-403, May.
  9. Darby, Julia & Malley, Jim, 1996. "Fiscal Policy and Aggregate Consumption: New Evidence from the United States," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(2), pages 129-45, May.
  10. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 449-59, October.
  11. Molana, Hassan, 1997. "Consumption and Fiscal Policy: UK Evidence from a Cointegration Approach on Substitution between Private and Public Spending on Goods and Services," Empirical Economics, Springer, vol. 22(1), pages 63-81.
  12. Ni, Shawn, 1995. "An empirical analysis on the substitutability between private consumption and government purchases," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 593-605, December.
  13. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
  14. Julia Darby & Jim Malley, 1994. "Fiscal Policy and Consumption: New Evidence from the United States," Working Papers Series 94/9, University of Stirling, Division of Economics.
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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