Government Consumption and the Composition of Private Expenditure: A Conditional Error Correction Model

24 Pages Posted: 31 Mar 2008

See all articles by David Aristei

David Aristei

University of Perugia

Luca Pieroni

University of Perugia - Department of Economics

Date Written: 2007-05-10

Abstract

In this paper we provide empirical evidence of the relationship between government purchases and private expenditure by adopting a microeconomic approach. Using UK quarterly data, a long-run demand system conditioned to the public sector is obtained by specifying a vector error correction model in which government consumption is assumed as an exogenous I(1) forcing variable. Our findings reject the hypothesis of separability of individual preferences between public and private expenditures, with simultaneous crowding-out/in effects. Moreover, crowding-out effects of government consumption on private spending are found to be larger for those goods and services that produce similar utility.

Suggested Citation

Aristei, David and Pieroni, Luca, Government Consumption and the Composition of Private Expenditure: A Conditional Error Correction Model (2007-05-10). Scottish Journal of Political Economy, Vol. 55, Issue 2, pp. 143-166, May 2008, Available at SSRN: https://ssrn.com/abstract=1114378 or http://dx.doi.org/10.1111/j.1467-9485.2008.00448.x

David Aristei (Contact Author)

University of Perugia ( email )

Via Pascoli 22
Perigoa, 06121
Italy

Luca Pieroni

University of Perugia - Department of Economics ( email )

via Pascoli, 20
PG 06123 Perugia, 06123
Italy

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