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The Direct Substitution Between Government and Private Consumption in East Asia

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Author Info
Yum K. Kwan
Abstract

We investigate empirically the extent to which government consumption substitutes for private consumption in nine East Asia countries. Panel cointegrating regression uncovers a significantly positive elasticity of substitution between government and private consumption, implying on average government and private consumption are substitutes in East Asia. Country-by-country analysis, however, reveals diversity in the substitutability estimates. The four North East countries %u2013 China, Hong Kong, Japan, and Korea %u2013 tend to share similar and moderate values of the substitution elasticity. For the five ASEAN countries studied in this paper, the relationship between private and government consumption vary substantially, both in the sign and magnitude of the elasticity of substitution. Private and government consumption in Malaysia and Thailand are strong substitutes, but they are found to be complements in Indonesia and Singapore. In between is the Philippines which has a near zero elasticity of substitution.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12431.

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Date of creation: Aug 2006
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Handle: RePEc:nbr:nberwo:12431

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E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
H5 - Public Economics - - National Government Expenditures and Related Policies

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  1. Kühn, Stefan & Muysken, Joan & Veen, Tom van, 2009. "The Adverse Effects of Government Spending on Private Consumption in New Keynesian Models," Research Memoranda 004, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  2. Sanghamitra Bandyopadhyay & Joan Esteban, 2007. "Redistributive Taxation and PublicExpenditures," STICERD - Distributional Analysis Research Programme Papers 95, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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