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

Author/Editor:

Sanchita Mukherjee ; Rina Bhattacharya

Publication Date:

November 1, 2010

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2010/264

Subject:

Fiscal consolidation Government consumption Income Private consumption Public debt

English

Publication Date:

November 1, 2010

ISBN/ISSN:

9781455210718/1018-5941

Stock No:

WPIEA2010264

Pages:

27

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