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Private Sector Consumption and Government Consumption and Debt in Advanced Economies An Empirical Study


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  • Sanchita Mukherjee
  • Rina Bhattacharya


This paper explores the hypothesis that the propensity to consume out of income varies in a non-linear fashion with fiscal variables, and in particular with government debt per capita. Using data from eighteen OECD countries the paper examines whether there is any empirical evidence to support the hypothesis that households move from non-Ricardian to Ricardian behavior as government debt reaches high levels and as uncertainty about future taxes increases. Our results provide support for this hypothesis, and also suggest that private and government consumption are substitutes in the household utility function.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/264.

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Length: 27
Date of creation: 01 Nov 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/264

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Postal: International Monetary Fund, Washington, DC USA
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Keywords: Fiscal policy; Private consumption; Developed countries; Economic models; Fiscal consolidation; Income; Public debt; Sovereign debt; household income; marginal propensity to consume; aggregate demand; the marginal propensity to consume; fiscal adjustments; government spending; fiscal adjustment; fiscal consolidations; consumption function; budget constraint; fiscal contraction; fiscal variables; disposable income; consumption behavior; capital expenditure; consumption spending; fiscal deficits; tax increases; fiscal multipliers; consumption per capita; fiscal austerity; real per capita terms; fiscal crises; public debt reverse; fiscal affairs department; consumption increases; current expenditures; expansionary ? fiscal; expenditure cuts; household budget; fiscal affairs; fiscal contractions; fiscal problem; budget deficits; fiscal regime; fiscal expansions; permanent income; fiscal governance; substitution effect; fiscal effort; expansionary ? fiscal consolidations; tax burden; spending cuts; primary current expenditure; tax increase; labor income; current consumption; fiscal deficit;

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