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Effects of Fiscal Policy on Private Consumption

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  • Mika Arola
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    Abstract

    This paper examines the effects of fiscal policy on private consumption. The paper evaluates the assumption that the effects of fiscal policy are dependent on the public sector's financial situation, which changes the private sector's income expectations. For this purpose regression equations are run with international data. From the international evidence it is found that every component of fiscal policy, public consumption, taxes, and transfers, may have regime-specific effects related to the financial balance in the public sector. Regressions of Finnish data show that private sector's income expectations may have played an important role in the private consumption changes of the early 199Os. In light of the international estimations, it is also found that changes in the unemployment rate may have regime-specific effects on consumption.

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    File URL: http://www.vatt.fi/file/vatt_publication_pdf/k133.pdf
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    File URL: http://www.vatt.fi/publications/latestPublications/publication/Publication_1345_id/143
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    Bibliographic Info

    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 133.

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    Date of creation: 01 Jan 1996
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    Handle: RePEc:fer:dpaper:133

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    Related research

    Keywords: Fiscal policy; private consumption; non-Keynesian effects; budget deficits; public debt; fiscal crisis;

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