Government spending under non-separability: a theoretical analysis
We derive analytic implicit form conditions for the qualitative analysis of government spending multipliers and the optimal level of government spending in presence of non-separability between private and public components of aggregate demand. Using the simplest neo-classical flexible price model with no capital accumulation, we show that Edgeworth dependence is not a suitable condition to automatically assess the signs of the consumption and output multipliers, for which a more complex analysis must be carried out. We propose a detailed investigation of the form and the characteristics of the involved utility functions, which are crucial to such evaluation. We also show that if Edgeworth complementarity is strong enough, a public spending stimulus can raise at the same time private consumption and real activity. In order to reconcile our general framework with existing literature, we discuss recent examples of non-separable functional forms from the standpoint of our results, and argue that their consistency relies on specific assumptions about steady-state points. Copyright Springer-Verlag Berlin Heidelberg 2014
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 61 (2014)
Issue (Month): 1 (April)
|Contact details of provider:|| Web page: http://www.springer.com|
Web page: http://www.heirs.it/
|Order Information:||Web: http://www.springer.com/economics/policy/journal/12232/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bilbiie, Florin Ovidiu, 2009. "Non-Separable Preferences and Frisch Labor Supply: One Solution to a Fiscal Policy Puzzle," CEPR Discussion Papers 7484, C.E.P.R. Discussion Papers.
- King, R.G. & Baxter, M., 1990.
"Fiscal Policy In General Equilibrium,"
RCER Working Papers
244, University of Rochester - Center for Economic Research (RCER).
- Agustín García & Julián Ramajo, 2005. "Fiscal policy and private consumption behaviour: The Spanish case," Empirical Economics, Springer, vol. 30(1), pages 115-135, January.
- Giovanni Ganelli, 2007. "The Effects Of Fiscal Shocks On Consumption: Reconciling Theory And Data," Manchester School, University of Manchester, vol. 75(2), pages 193-209, 03.
- Alan J. Auerbach & Yuriy Gorodnichenko, 2012.
"Fiscal Multipliers in Recession and Expansion,"
in: Fiscal Policy after the Financial Crisis, pages 63-98
National Bureau of Economic Research, Inc.
- Sharon Harrison & Jang-Ting Guo, 2006.
"Useful Government Spending and Macroeconomic (In)stability under Balanced-Budget Rules,"
0701, Barnard College, Department of Economics.
- Jang-Ting Guo & Sharon G. Harrison, 2008. "Useful Government Spending and Macroeconomic (In)stability under Balanced-Budget Rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(3), pages 383-397, 06.
- Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009.
"When is the government spending multiplier large?,"
NBER Working Papers
15394, National Bureau of Economic Research, Inc.
- Olivier Blanchard & Roberto Perotti, 2002.
"An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 117(4), pages 1329-1368.
- 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.
- Coenen, Günter & Straub, Roland, 2005.
"Does government spending crowd in private consumption? Theory and empirical evidence for the euro area,"
Working Paper Series
0513, European Central Bank.
- Günter Coenen & Roland Straub, 2005. "Does Government Spending Crowd in Private Consumption? Theory and Empirical Evidence for the Euro Area," International Finance, Wiley Blackwell, vol. 8(3), pages 435-470, December.
- GÃ¼nter Coenen & Roland Straub, 2005. "Does Government Spending Crowd In Private Consumption? Theory and Empirical Evidence for the Euro Area," IMF Working Papers 05/159, International Monetary Fund.
- Linnemann, Ludger & Schabert, Andreas, 2004. "Can fiscal spending stimulate private consumption?," Economics Letters, Elsevier, vol. 82(2), pages 173-179, February.
- Michael Woodford, 2011.
"Simple Analytics of the Government Expenditure Multiplier,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 3(1), pages 1-35, January.
- Woodford, Michael, 2010. "Simple Analytics of the Government Expenditure Multiplier," CEPR Discussion Papers 7704, C.E.P.R. Discussion Papers.
- Michael Woodford, 2010. "Simple Analytics of the Government Expenditure Multiplier," NBER Working Papers 15714, National Bureau of Economic Research, Inc.
- Monacelli, Tommaso & Perotti, Roberto, 2008.
"Fiscal Policy, Wealth Effects and Markups,"
CEPR Discussion Papers
7099, C.E.P.R. Discussion Papers.
- Ganelli, Giovanni & Tervala, Juha, 2009. "Can government spending increase private consumption? The role of complementarity," Economics Letters, Elsevier, vol. 103(1), pages 5-7, April.
- Robert E. Hall, 2009.
"By How Much Does GDP Rise if the Government Buys More Output?,"
NBER Working Papers
15496, National Bureau of Economic Research, Inc.
- Robert E. Hall, 2009. "By How Much Does GDP Rise If the Government Buys More Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 183-249.
- Fiorito, Riccardo & Kollintzas, Tryphon, 2002.
"Public Goods, Merit Goods, and the Relation Between Private and Government Consumption,"
CEPR Discussion Papers
3617, C.E.P.R. Discussion Papers.
- Fiorito, Riccardo & Kollintzas, Tryphon, 2004. "Public goods, merit goods, and the relation between private and government consumption," European Economic Review, Elsevier, vol. 48(6), pages 1367-1398, December.
- Valerie A. Ramey, 2011.
"Identifying Government Spending Shocks: It's all in the Timing,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 126(1), pages 1-50.
- Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
- Iwata, Yasuharu, 2013. "Two fiscal policy puzzles revisited: New evidence and an explanation," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 188-207.
- Georgios Karras, 2012. "Trade openness and the effectiveness of fiscal policy: some empirical evidence," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(3), pages 303-313, September.
- Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1469-1513.
When requesting a correction, please mention this item's handle: RePEc:spr:inrvec:v:61:y:2014:i:1:p:39-60. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.