In this paper, we elaborate on the notion of effective consumption and its role in determining the outcome of fiscal changes. More specifically, we investigate whether government consumption, by acting either as a complement or a substitute to private consumption, can help explain the non-Keynesian effects of fiscal policy that have been previously documented. We let the periods, where government consumption has acted as a complement or a substitute to private consumption, constitute different regimes. By using econometric methodologies that allow the these regimes to be determined both exogenously and endogenously, we find that the notion of effective consumption can assist in understanding the non-Keynesian effects of fiscal policy that have been documented in Denmark, Ireland and Sweden.
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Paper provided by Lund University, Department of Economics in its series Working Papers with number
2004:26.
Length: 30 pages Date of creation: 25 Nov 2004 Date of revision: Handle: RePEc:hhs:lunewp:2004_026
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Find related papers by JEL classification: E21 - Macroeconomics and Monetary Economics - - Macroeconomics: 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
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