The 'German View', Fiscal Consolidation and Consumption Booms: Empirical Evidence from Denmark
We develop an alternative test of the 'German View' that fiscal contractions may lead to immediate consumption booms derived from a form of an open-economy permanent income model where we add uncertainty over whether shocks are permanent or transitory. Using a time-series statistical methodology, we distinguish between three shifts to "permanent" income - those arising from permanent shifts in government expenditure, terms-of-trade and "other" factors including cost and productivity shocks. We are also able to identify a composite transitory disturbance on consumption, which incorporates short-run aggregate demand considerations and business cycle effects. In our empirical study we find, in accordance with the 'German View', that an anticipated permanent reduction of government expenditure is associated with a strong short-run (and permanent) increase in private consumption. However, the Danish experience following the fiscal contraction in 1982 suggest that this was not a dominant factor behind the consumption boom. Our evidence shows instead that other factors increasing permanent income, including a substantial terms-of-trade improvement, were much more important.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:|
|Contact details of provider:|| Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark|
Phone: (+45) 3532 4411
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk/epru/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:kud:epruwp:96-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann)
If references are entirely missing, you can add them using this form.