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Private Sector Consumption and Government Consumption and Debt in Advanced Economies; An Empirical Study


  • Sanchita Mukherjee
  • Rina Bhattacharya


This paper explores the hypothesis that the propensity to consume out of income varies in a non-linear fashion with fiscal variables, and in particular with government debt per capita. Using data from eighteen OECD countries the paper examines whether there is any empirical evidence to support the hypothesis that households move from non-Ricardian to Ricardian behavior 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 substitutes in the household utility function.

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  • Sanchita Mukherjee & Rina Bhattacharya, 2010. "Private Sector Consumption and Government Consumption and Debt in Advanced Economies; An Empirical Study," IMF Working Papers 10/264, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/264

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    References listed on IDEAS

    1. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    2. Kang, Wensheng & Lee, Kiseok & Ratti, Ronald A., 2014. "Economic policy uncertainty and firm-level investment," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 42-53.
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    Cited by:

    1. Flaschel, Peter & Charpe, Matthieu & Galanis, Giorgos & ProaƱo Acosta, Christian & Veneziani, Roberto, 2017. "Macroeconomic and stock market interactions with endogenous aggregate sentiment dynamics," BERG Working Paper Series 125, Bamberg University, Bamberg Economic Research Group.
    2. Roberto Veneziani, 2017. "Macroeconomic and stock market interactions with endogenous aggregate sentiment dynamics," IMK Working Paper 186-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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    Fiscal policy; Government debt; Private consumption; non-Ricardian behavior; household income; fiscal consolidation; marginal propensity to consume;

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