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Consumption Multipliers of Different Types of Public Spending: a Structural Vector Error Correction Analysis for the UK

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  • L. Marattin
  • S. Salotti

Abstract

The aim of this paper is to investigate the relationship between government spending and private consumption in the UK, for which there is scarce previous empirical evidence. We disaggregate public expenditure into three categories and search for the corresponding private consumption multipliers. Our analysis includes the estimation of a structural vector error correction (SVEC) model, using quarterly non-interpolated data for the period 1981:1 – 2007:4. Initially, we estimate negative effects on consumption of shocks to total public spending. Then, using the spending decomposition, we find that while shocks to public wages crowd-out private consumption as predicted by neoclassical models, shocks to the non-systematic component of social spending and government purchases of goods and services generate a positive reaction, so to crowd-in private consumption. Thus, the qualitative and quantitative dimensions of fiscal multipliers on private consumption change across different public spending categories. Our findings suggest that any empirical support of competing theoretical models on the issue would benefit from a disaggregation of government expenditure, rather than focusing on the aggregate measure

Suggested Citation

  • L. Marattin & S. Salotti, 2010. "Consumption Multipliers of Different Types of Public Spending: a Structural Vector Error Correction Analysis for the UK," Working Papers wp719, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:wp719
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    Cited by:

    1. Ashima Goyal & Bhavyaa Sharma, 2015. "Government expenditure in India: Composition, cyclicality and multipliers," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-032, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Raffaella Basile & Bruno Chiarini & Giovanni Luca & Elisabetta Marzano, 2016. "Fiscal multipliers and unreported production: evidence for Italy," Empirical Economics, Springer, vol. 51(3), pages 877-896, November.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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