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Effects of Fiscal Policy on Private Consumption


  • Arola, Mika


This paper examines the effects of fiscal policy on private consumption. The paper evaluates the assumption that the effects of fiscal policy are dependent on the public sector's financial situation, which changes the private sector's income expectations. For this purpose regression equations are run with international data. From the international evidence it is found that every component of fiscal policy, public consumption, taxes, and transfers, may have regime-specific effects related to the financial balance in the public sector. Regressions of Finnish data show that private sector's income expectations may have played an important role in the private consumption changes of the early 199Os. In light of the international estimations, it is also found that changes in the unemployment rate may have regime-specific effects on consumption.

Suggested Citation

  • Arola, Mika, 1996. "Effects of Fiscal Policy on Private Consumption," Discussion Papers 133, VATT Institute for Economic Research.
  • Handle: RePEc:fer:dpaper:133

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    References listed on IDEAS

    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
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    5. Setterfield, M. A. & Gordon, D. V. & Osberg, L., 1992. "Searching for a will o' the wisp : An empirical study of the NAIRU in Canada," European Economic Review, Elsevier, vol. 36(1), pages 119-136, January.
    6. Jørgen Elmeskov, 1993. "High and Persistent Unemployment: Assessment of the Problem and Its Causes," OECD Economics Department Working Papers 132, OECD Publishing.
    7. Lafontaine, Francine & White, Kenneth J., 1986. "Obtaining any Wald statistic you want," Economics Letters, Elsevier, vol. 21(1), pages 35-40.
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