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Government Consumption And The Composition Of Private Expenditure: A Conditional Error Correction Model

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  • David Aristei
  • Luca Pieroni

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.

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  • David Aristei & Luca Pieroni, 2008. "Government Consumption And The Composition Of Private Expenditure: A Conditional Error Correction Model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(2), pages 143-166, May.
    • Handle: RePEc:bla:scotjp:v:55:y:2008:i:2:p:143-166
    DOI: 10.1111/j.1467-9485.2008.00448.x
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    1. Jan-Egbert Sturm, 1998. "Public Capital Expenditure in OECD Countries," Books, Edward Elgar Publishing, number 1500.
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    Cited by:

    1. Pieroni, Luca & d'Agostino, Giorgio & Lorusso, Marco, 2008. "Can we declare military Keynesianism dead?," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 675-691.
    2. Pieroni, Luca & Lorusso, Marco, 2013. "The Role of Fiscal Policy Components in Private Consumption: a Re-examination of the Effects of Military and Civilian Spending," MPRA Paper 47878, University Library of Munich, Germany.

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