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Public Consumption Over the Business Cycle

Author

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  • Ruediger Bachmann

    (University of Michigan)

Abstract

This paper characterizes quantitatively the business cycle dynamics of public consumption in a neoclassical representative household model with endogenous and time-consistent public policy. We show that a simple frictionless version of such a model with productivity as the only aggregate driving force fails to match important features of the business cycle dynamics of U.S. public consumption. It is not persistent enough and too synchronized with the cycle. We add implementation lags and costs in the budgeting process as frictions plus taste shocks for public consumption relative to private consumption, and achieve a substantially better match to the data. All these ingredients are necessary to improve the fit.

Suggested Citation

  • Ruediger Bachmann, 2011. "Public Consumption Over the Business Cycle," 2011 Meeting Papers 701, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:701
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    References listed on IDEAS

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    Cited by:

    1. Grechyna, Daryna, 2016. "The Structure of Government Spending and the Business Cycle," MPRA Paper 72029, University Library of Munich, Germany.
    2. Bachmann, Rüdiger & Sims, Eric R., 2012. "Confidence and the transmission of government spending shocks," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 235-249.
    3. Azzimonti, Marina & Talbert, Matthew, 2014. "Polarized business cycles," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 47-61.
    4. Marina Azzimonti, 2015. "The dynamics of public investment under persistent electoral advantage," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 653-678, July.
    5. Facundo Piguillem & Anderson Schneider, 2013. "Heterogeneous Labor Skills, The Median Voter and Labor Taxes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 332-349, April.
    6. Juan Equiza Goni, 2014. "Sovereign Debt in the U.S. and Growth Expectations," Working Papers ECARES ECARES 2014-25, ULB -- Universite Libre de Bruxelles.
    7. Atalay, Yasemin & Kalfagianni, Agni & Pattberg, Philipp, 2017. "Renewable energy support mechanisms in the Gulf Cooperation Council states: Analyzing the feasibility of feed-in tariffs and auction mechanisms," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 723-733.
    8. Xu, Kun & Xu, Wenli, 2015. "中国政府消费支出对经济波动的传导机理分析
      [Study on Influential Mechanism Between Government Expenditure of Consumption and Economic Fluctuation]
      ," MPRA Paper 70994, University Library of Munich, Germany, revised Dec 2015.
    9. Ruediger Bachmann & Jinhui Bai, 2013. "Politico-Economic Inequality and the Comovement of Government Purchases," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 565-580, October.

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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