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Non-Keynesian effects of fiscal policy in OECD economies: an empirical study

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  • Rina Bhattacharya
  • Sanchita Mukherjee

Abstract

This article explores the hypothesis that the propensity to consume out of income varies in a nonlinear fashion with fiscal variables, and in particular with government debt per capita. Using panel data from 18 Organization for Economic Cooperation and Development (OECD) countries, we examine whether there is any empirical evidence to support the hypothesis that households move from non-Ricardian to Ricardian behaviour as government debt reaches high levels and as uncertainty about future taxes increases. Our results provide support for this hypothesis, and also suggest that private and government consumption are complements in the household utility function.

Suggested Citation

  • Rina Bhattacharya & Sanchita Mukherjee, 2013. "Non-Keynesian effects of fiscal policy in OECD economies: an empirical study," Applied Economics, Taylor & Francis Journals, vol. 45(29), pages 4122-4136, October.
  • Handle: RePEc:taf:applec:v:45:y:2013:i:29:p:4122-4136
    DOI: 10.1080/00036846.2012.752571
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    References listed on IDEAS

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    1. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
    2. Rina Bhattacharya, 1999. "Private Sector Consumption Behavior and Non-Keynesian Effects of Fiscal Policy," IMF Working Papers 99/112, International Monetary Fund.
    3. Maria Gabriella Briotti, 2004. "Fiscal adjustment between 1991 and 2002 - stylised facts and policy implications," Occasional Paper Series 09, European Central Bank.
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    1. repec:sos:sosjrn:170406 is not listed on IDEAS
    2. Paweł Borys & Piotr Ciżkowicz & Andrzej Rzońca, 2014. "Panel Data Evidence on the Effects of Fiscal Policy Shocks in the EU New Member States," Fiscal Studies, Institute for Fiscal Studies, vol. 35, pages 189-224, June.
    3. Zuzana Machova & Igor Kotlan, 2014. "Expenditures on Collective and Individual Services: Discussion on the Classification of Government Expenditures with Regard to their Inclusion into Growth Models," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 4, pages 287-296, December.
    4. Zuzana Machová & Igor Kotlán, 2015. "Právní jistota - možný problém daňové politiky vyspělých zemí?
      [Legal Certainty - Possible Problem of Tax Policy in Developed Countries?]
      ," Politická ekonomie, University of Economics, Prague, vol. 2015(7), pages 833-846.
    5. Wissem Khanfir, 2016. "Threshold effect of fiscal policy on private consumption : Evidence from Tunisia," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 18(59), pages 95-110, March.

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