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Nonlinear Effects of Government Debt on Private Consumption in OECD Countries

Author

Listed:
  • Cho , Dooyeon

    (Sungkyunkwan University)

  • Rhee , Dong-Eun

    (Korea Institute for International Economic Policy)

Abstract

This paper investigates nonlinear effects of government debt on private consumption in 16 OECD countries. The estimated consumption function shows smooth regime switching depending on the debt-to-GDP ratio, and the threshold level of regime switching is found to be the ratio of 83.7 percent. The results reveal that a higher level of government debt crowds out private consumption to a greater extent, and that the degree of the crowding out effect has deteriorated since the global financial crisis.

Suggested Citation

  • Cho , Dooyeon & Rhee , Dong-Eun, 2013. "Nonlinear Effects of Government Debt on Private Consumption in OECD Countries," Working Papers 13-5, Korea Institute for International Economic Policy.
  • Handle: RePEc:ris:kiepwp:2013_005
    DOI: 10.2139/ssrn.2366184
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Consumption; Government Debt; Nonlinearity; Panel Smooth Transition Regression Model;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single 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
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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