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Government Spending and Consumer Attitudes Toward Risk, Time Preference, and Intertemporal Substitution: An Econometric Analysis

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  • Hatzinikolaou, Dimitris
  • Ahking, Francis

Abstract

We construct a model that considers the direct effects, if any, of government spending on the attitudes of a typical consumer toward risk, time preference, and intertemporal substitution. The null hypothesis is that a growing government sector does not affect the consumer's behavior, and the alternative is that it causes him to become less risk averse, more impatient to consume now rather than in the future, and less responsive to changes in real interest rates. If the alternative hypothesis is correct, then government growth may lead to lower economic growth. Using Greek annual aggregate data, 1960-1990, we can reject the null hypothesis.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46164.

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Date of creation: Apr 1995
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Publication status: Published in Southern Economic Journal April 1995.61(1995): pp. 1117-1126
Handle: RePEc:pra:mprapa:46164

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Keywords: risk; time preference; intertemporal substitution; consumption;

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  1. Tauchen, George, 1986. "Statistical Properties of Generalized Method-of-Moments Estimators of Structural Parameters Obtained from Financial Market Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(4), pages 397-416, October.
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  3. Obstfeld, Maurice, 1990. "Intertemporal dependence, impatience, and dynamics," Journal of Monetary Economics, Elsevier, vol. 26(1), pages 45-75, August.
  4. Bean, Charles R, 1985. "The Estimation of 'Surprise' Models and the 'Surprise' Consumption Function," CEPR Discussion Papers 54, C.E.P.R. Discussion Papers.
  5. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
  6. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
  7. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  8. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 327-68, May.
  9. Paroush, Jacob, 1975. "Risk premium with many commodities," Journal of Economic Theory, Elsevier, vol. 11(2), pages 283-286, October.
  10. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, vol. 7(4), pages 307-311.
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Cited by:
  1. Yamamura, Eiji, 2014. "Time preference and perceptions about government spending and tax: Smokers’ dependence on government support," MPRA Paper 55659, University Library of Munich, Germany.
  2. Hatzinikolaou, Dimitris, 1999. "Modelling consumption: permanent-income or rule-of-thumb behaviour?," Economic Modelling, Elsevier, vol. 16(2), pages 293-306, April.

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