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Fiscal Policy and Aggregate Consumption: New Evidence from the United States

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  • Darby, Julia
  • Malley, Jim

Abstract

In this paper, the authors estimate the marginal rate of substitution between aggregate nondurable consumption and government expenditure using U.S. data from 1953 to 1993. This estimate is an important input to any attempt to assess the overall effectiveness of fiscal policy since it directly effects the size of the fiscal policy multiplier. Other recent studies have failed to establish a stable estimate of this parameter. The authors argue that this failure results from imposing the unrealistic assumption of parameter constancy. In contrast, they allow the marginal rate of substitution to depend on both the level and composition of government spending. Copyright 1996 by Scottish Economic Society.

Suggested Citation

  • Darby, Julia & Malley, Jim, 1996. "Fiscal Policy and Aggregate Consumption: New Evidence from the United States," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(2), pages 129-145, May.
  • Handle: RePEc:bla:scotjp:v:43:y:1996:i:2:p:129-45
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    Cited by:

    1. James Alm & Asmaa El-Ganainy, 2013. "Value-added taxation and consumption," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(1), pages 105-128, February.
    2. Meguire, Philip, 1998. "Comment: Social Security and Private Savings," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(2), pages 339-358, June.
    3. Meguire, Philip, 1998. "Comment: Social Security and Private Savings," National Tax Journal, National Tax Association, vol. 51(n. 2), pages 339-58, June.
    4. David Aristei & Luca Pieroni, 2005. "Estimating the Role of Government Expenditure in Long-run Consumption," Quaderni del Dipartimento di Economia, Finanza e Statistica 13/2005, Università di Perugia, Dipartimento Economia.
    5. Malley Jim & Molana Hassan, 2002. "Fiscal Policy And The Composition Of Private Consumption: Some Evidence From The U.A. And Canada," International Economic Journal, Taylor & Francis Journals, vol. 16(1), pages 139-158.

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