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Effects of Government Spending on the Current Account with Endogenous Time Preference

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  • Wen‐Ya Chang
  • Hsueh‐Fang Tsai
  • Wen‐Fang Liu

Abstract

This paper extends a previous model to set up a small open economy with perfect capital mobility, and examines the effects of an unanticipated permanent rise in public spending on the optimal rates of private consumption and the current account. The novelty of the paper is consideration of the relationship between private and public consumption in the household's utility function as well as endogenous rates of time preference. It is found that the key factor determining the adjustment patterns of private consumption and the current account is the marginal utility of private consumption and of public spending, which results from endogenous recursive preferences.

Suggested Citation

  • Wen‐Ya Chang & Hsueh‐Fang Tsai & Wen‐Fang Liu, 1998. "Effects of Government Spending on the Current Account with Endogenous Time Preference," Southern Economic Journal, John Wiley & Sons, vol. 64(3), pages 728-740, January.
    • Handle: RePEc:wly:soecon:v:64:y:1998:i:3:p:728-740
    DOI: 10.1002/j.2325-8012.1998.tb00090.x
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    References listed on IDEAS

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