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Consumption and Government-Budget Finance in a High-Deficit Economy

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  • Leonardo Leiderman
  • Assaf Razin

Abstract

This paper characterizes empirically how government budget variables, such as spending, taxes, and deficits, affected private-sector consumption in the high-budget-deficit economy of Israel during the first half of the 1980s. The paper develops and estimates an intertemporal optimizing model of consumption choice by finite-lived individuals. The evidence supports this formulation against the Ricardian infinite-horizon case, but it does not support it when compared to the unrestricted relations in the data.

Suggested Citation

  • Leonardo Leiderman & Assaf Razin, 1986. "Consumption and Government-Budget Finance in a High-Deficit Economy," NBER Working Papers 2032, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2032
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    References listed on IDEAS

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    6. Seater, John J, 1982. "Are Future Taxes Discounted?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(3), pages 376-389, August.
    7. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-594, June.
    8. Kochin, Levis A, 1974. "Are Future Taxes Anticipated by Consumers? Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(3), pages 385-394, August.
    9. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
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    Cited by:

    1. Basil Dalamagas, 1994. "Testing the Debt-Illusion Hypothesis," Revue Économique, Programme National Persée, vol. 45(4), pages 1079-1094.
    2. B. Dalamagas, 1993. "Fiscal Illusion and the Level of Indebtedness: An International Comparison," South African Journal of Economics, Economic Society of South Africa, vol. 61(1), pages 29-37, March.

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