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Public-Private Consumption Tradeoffs and the Balanced Budget Multiplier

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  • Uri Possen
  • Steven Slutsky

Abstract

This paper considers consumers who have multiperiod utility functions that have private and public goods as arguments. The paper analyzes the effect on private demands of various exogenous balanced budget changes in the path of public expenditure: temporary, permanent, and countercyclical. The effects of temporary and countercyclical changes depend upon whether public and private goods are complements or substitutes and whether public goods are over- or undersupplied. The largest impact comes from countercyclical changes in undersupplied complementary public goods. Permanent changes tend to have a smaller impact but are harder to specify, since the results crucially depend upon the third derivatives of utility functions.

Suggested Citation

  • Uri Possen & Steven Slutsky, 1980. "Public-Private Consumption Tradeoffs and the Balanced Budget Multiplier," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(4), pages 679-702.
    • Handle: RePEc:oup:qjecon:v:95:y:1980:i:4:p:679-702.
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    File URL: http://hdl.handle.net/10.2307/1885487
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    Cited by:

    1. Simon Fan & Yu Pang & Pierre Pestieau, 2020. "A model of the optimal allocation of government expenditures," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 845-876, August.
    2. PESTIEAU, Pierre & POSSEN, Uri, 2000. "Macroeconomic implications of switching the social security trust fund towards a greater investment in equities," LIDAM Discussion Papers CORE 2000035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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