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Public Consumption Over the Business Cycle

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  • Ruediger Bachmann

    (University of Michigan)

Abstract

This paper characterizes quantitatively the business cycle dynamics of public consumption in a neoclassical representative household model with endogenous and time-consistent public policy. We show that a simple frictionless version of such a model with productivity as the only aggregate driving force fails to match important features of the business cycle dynamics of U.S. public consumption. It is not persistent enough and too synchronized with the cycle. We add implementation lags and costs in the budgeting process as frictions plus taste shocks for public consumption relative to private consumption, and achieve a substantially better match to the data. All these ingredients are necessary to improve the fit.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 701.

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Date of creation: 2011
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Handle: RePEc:red:sed011:701

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References

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  1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2006. "Business cycle accounting," Staff Report 328, Federal Reserve Bank of Minneapolis.
  2. Jose-Victor Rios-Rull & Per Krusell, 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, American Economic Association, vol. 89(5), pages 1156-1181, December.
  3. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2007. "Rotten parents and disciplined children: a politico-economic theory of public expenditure and debt," IEW - Working Papers 325, Institute for Empirical Research in Economics - University of Zurich.
  4. Corbae, Dean & D'Erasmo, Pablo & Kuruscu, Burhanettin, 2009. "Politico-economic consequences of rising wage inequality," Journal of Monetary Economics, Elsevier, vol. 56(1), pages 43-61, January.
  5. Roger Lagunoff & Jinhui Bai, 2008. "On the ``Faustian Dynamics" of Policy and Political Power," 2008 Meeting Papers 456, Society for Economic Dynamics.
  6. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  7. marina, azzimonti, 2009. "Barriers to investment in polarized societies," MPRA Paper 25936, University Library of Munich, Germany.
  8. Paul Klein & Per Krusell & José-V�ctor R�os-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
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  19. Barseghyan, Levon & Battaglini, Marco & Coate, Stephen, 2013. "Fiscal policy over the real business cycle: A positive theory," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2223-2265.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Public consumption and the business cycle
    by Economic Logician in Economic Logic on 2011-08-18 14:49:00
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Cited by:
  1. Facundo Piguillem & Anderson L. Schneider, 2010. "Heterogeneous Labor Skills, The Median Voter and Labor Taxes," EIEF Working Papers Series 1002, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2009.
  2. Ruediger Bachmann & Jinhui Bai, 2012. "Online Appendix to "Politico-Economic Inequality and the Comovement of Government Purchases"," Technical Appendices 11-243, Review of Economic Dynamics.
  3. Rüdiger Bachmann & Eric R. Sims, 2011. "Confidence and the Transmission of Government Spending Shocks," NBER Working Papers 17063, National Bureau of Economic Research, Inc.
  4. Marina Azzimonti, 2012. "The dynamics of public investment under persistent electoral advantag," 2012 Meeting Papers 91, Society for Economic Dynamics.

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