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

  • Vicente Esteve
  • Juan Sanchis-Llopis

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.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 20 ()
Pages: 2327-2334

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Handle: RePEc:taf:applec:v:37:y:2005:i:20:p:2327-2334
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  1. Perron, P. & Ng, S., 1994. "Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties," Cahiers de recherche 9427, Universite de Montreal, Departement de sciences economiques.
  2. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  3. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
  4. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  5. Shin, Yongcheol, 1994. "A Residual-Based Test of the Null of Cointegration Against the Alternative of No Cointegration," Econometric Theory, Cambridge University Press, vol. 10(01), pages 91-115, March.
  6. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche 9423, Universite de Montreal, Departement de sciences economiques.
  7. Andrea Zaghini, 2001. "Fiscal adjustments and economic performing: a comparative study," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 613-624.
  8. Cecilio R. Tamarit Escalona & Vicente Esteve Garcia & Maria Amparo Camarero Olivas, 1997. "Gasto público y consumo privado en España: ¿sustitutivos o complementarios?," Working Papers. Serie EC 1997-07, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  10. Allan w. Gregory & Bruce E. Hansen, 1992. "residual-Based Tests for Cointegration in Models with Regime Shifts," Working Papers 862, Queen's University, Department of Economics.
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