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Nonlinear effects of government debt on private consumption: Evidence from OECD countries

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  • Cho, Dooyeon
  • Rhee, Dong-Eun

Abstract

This paper investigates nonlinear effects of government debt on private consumption. The estimated consumption function shows smooth regime switching depending on the debt-to-GDP ratio, and a higher level of government debt crowds out private consumption to a greater extent.

Suggested Citation

  • Cho, Dooyeon & Rhee, Dong-Eun, 2013. "Nonlinear effects of government debt on private consumption: Evidence from OECD countries," Economics Letters, Elsevier, vol. 121(3), pages 504-507.
    • Handle: RePEc:eee:ecolet:v:121:y:2013:i:3:p:504-507
    DOI: 10.1016/j.econlet.2013.10.013
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    References listed on IDEAS

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    1. Andrés González & Timo Teräsvirta & Dick van Dijk & Yukai Yang, 1910. "Panel Smooth Transition Regression Models," CREATES Research Papers 2017-36, Department of Economics and Business Economics, Aarhus University.
    2. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    3. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    4. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    6. Berben, Robert-Paul & Brosens, Teunis, 2007. "The impact of government debt on private consumption in OECD countries," Economics Letters, Elsevier, vol. 94(2), pages 220-225, February.
    7. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "What determines government spending multipliers?," Economic Policy, CEPR;CES;MSH, vol. 27(72), pages 521-565, October.
    8. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    9. Ludwig, Alexander & Slok, Torsten, 2004. "The relationship between stock prices, house prices and consumption in OECD," Papers 04-12, Sonderforschungsbreich 504.
    10. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-670, Special I.
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    More about this item

    Keywords

    Consumption; Government debt; Nonlinearity; Panel smooth transition regression error correction model;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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