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GOVERNMENT CONSUMPTION AND THE COMPOSITION OF PRIVATE EXPENDITURE: A CONDITIONAL ERROR CORRECTION MODEL
Author(s) -
Aristei David,
Pieroni Luca
Publication year - 2008
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2008.00448.x
Subject(s) - economics , crowding out , private consumption , consumption (sociology) , government (linguistics) , error correction model , government spending , government expenditure , forcing (mathematics) , econometrics , goods and services , private sector , public economics , instrumental variable , microeconomics , cointegration , public finance , macroeconomics , fiscal policy , welfare , mathematics , economy , market economy , mathematical analysis , social science , linguistics , philosophy , sociology , economic growth
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.