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Private Sector Consumption Behavior and Non-Keynesian Effects of Fiscal Policy

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  • Rina Bhattacharya

Abstract

This paper explores the hypothesis that the propensity to consume out of income is not constant but varies, perhaps in a nonlinear fashion, with fiscal variables. It 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. The paper also examines the possibility of a relationship (along the lines of the Bertola-Drazen model) between the propensity to consume out of income and the government consumption-to-GDP ratio.

Suggested Citation

  • Rina Bhattacharya, 1999. "Private Sector Consumption Behavior and Non-Keynesian Effects of Fiscal Policy," IMF Working Papers 99/112, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:99/112
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=3253
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    References listed on IDEAS

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    1. 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.
    2. 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.
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    Cited by:

    1. António Afonso, 2001. "Non-Keynesian Effects of Fiscal Policy in the EU-15," Working Papers Department of Economics 2001/07, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    2. Ikuo Saito, 2016. "Fading Ricardian Equivalence in Ageing Japan," IMF Working Papers 16/194, International Monetary Fund.
    3. 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, pages 189-224.
    4. Marek Lubiński, 2015. "Mnożnik fiskalny: reaktywacja," Gospodarka Narodowa, Warsaw School of Economics, issue 1, pages 5-26.
    5. Johansson, Martin & Jönsson, Kristian, 2003. "Public debt and the effects of government expenditure on private consumption - A Kalman filter analysis of the Swedish experience 1970-1997," Working Papers 2003:3, Lund University, Department of Economics.
    6. Bernadeta Baran, 2014. "Budgetary Discipline And Internal Devaluation – Estonian Method To Overcome The Crisis," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 9(2), pages 9-23, June.

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