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Estimating the substitutability between private and public consumption: the case of Spain, 1960-2003

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  • Vicente Esteve
  • Juan Sanchis-Llopis

Abstract

This paper examines the relationship between private and public consumption using Spanish data over the period 1960-2003, using a two-good permanent-income model. We extend previous analysis addressing the question of whether this relationship is stable over time, or exhibits a structural break allowing the instability to occur at an unknown point in time. Our empirical results indicated the existence of a long-run relationship between private and public consumption. We also detect a structural change of regime shift in the cointegration regression around the time of 1973-74. Finally, the estimated intratemporal and intertemporal elasticities of substitution between the two types of expenditure suggest that private and public consumption in Spain are Edgeworth-Pareto substitutes.

Suggested Citation

  • Vicente Esteve & Juan Sanchis-Llopis, 2005. "Estimating the substitutability between private and public consumption: the case of Spain, 1960-2003," Applied Economics, Taylor & Francis Journals, vol. 37(20), pages 2327-2334.
  • Handle: RePEc:taf:applec:v:37:y:2005:i:20:p:2327-2334 DOI: 10.1080/00036840500309288
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    Cited by:

    1. Kiyoshi Mitsui, 2007. "Comment on "The Direct Substitution between Government and Private Consumption in East Asia"," NBER Chapters,in: Fiscal Policy and Management in East Asia, NBER-EASE, Volume 16, pages 58-60 National Bureau of Economic Research, Inc.

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