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The 'German View' and Consumption Booms: Empirical Evidence from Denmark

Author

Listed:
  • Bergman, U. Michael

    (Department of Economics, Lund University)

  • Hutchison, Michael M.

    (Department of Economics, University of California Santa Cruz)

Abstract

We develop an alternative test of the `German view' - that a reduction in government consumption may lead to an immediate private consumption boom - derived from an open-economy permanent income model. In our empirical study we find, in accordance with the `German view', that an anticipated permanent reduction of government consumption is associated with a strong short-run (and permanent) increase in private consumption. However, the Danish experience following the fiscal contraction in 1982 suggest that this was not a dominant factor behind the private consumption boom. Our evidence shows instead that other factors increasing permanent income, including a substantial terms-of-trade improvement, were much more important.

Suggested Citation

  • Bergman, U. Michael & Hutchison, Michael M., 1999. "The 'German View' and Consumption Booms: Empirical Evidence from Denmark," Working Papers 1999:3, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:1999_003
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    Citations

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    Cited by:

    1. Kashif Mansori, 2001. "Economic Liberalization and Savings Rates," CESifo Working Paper Series 418, CESifo.

    More about this item

    Keywords

    Expansionary fiscal contraction; German view; consumption booms; structural shocks;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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