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The Effects of Government Spending on the Distribution of Consumption

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  • Giacomo De Giorgi

    ()

  • Luca Gambetti

    ()

Abstract

We study the effects of government spending on the distribution of consumption. We find a substantial degree of heterogeneity: consumption increases at the bottom and falls at the top of the distribution, implying a significant temporary reduction of con- sumption inequality. The effects of the shock display correlations of around -0.7/-0.9 with the percentage of stockholders within the decile. We interpret the results as in line and yielding support to models of limited participation where, while the Ricardian equivalence holds for rich households, for poor household, with no access to capital markets, the Keynesian multiplier is at work.

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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 905.12.

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Length: 26
Date of creation: 22 Jun 2012
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Handle: RePEc:aub:autbar:905.12

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Keywords: Consumption; Heterogeneity; Government Spending; VAR.;

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