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A Panel Cointegration Analysis of the Relation between Private and Government Consumption

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Abstract

This paper analyses the relation between private and government consumption in 23 OECD countries between 1970 and 2001. In particular it addresses the issue of whether government consumption is a substitute for or a complement to private consumption. The empirical analysis is made with panel cointegration analysis, using the newly developed CUSUM cointegration test by \cite{westerlund05}. The method is extended by using a bootstrap technique to control for cross-sectional dependence. The results show that government consumption is a complement to private consumption for most of the countries and a substitute for only a few of the countries.

Suggested Citation

  • Eriksson , Åsa, 2005. "A Panel Cointegration Analysis of the Relation between Private and Government Consumption," Working Papers 2006:2, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2006_002
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    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP06_2.pdf
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    Keywords

    Private consumption; Government consumption; Panel cointegration;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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