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Substitution Between Private and Public Consumption in Australia

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  • NILS OLEKALNS

Abstract

Large increases in the private sector's savings ratio during a period of rapid growth in the relative size of the public sector has led to the suggestion that substitution between private and public consumption may be an important fcature of the Australian economy (Clements 1979). In this paper, empirical estimates are presented which indicate that no such substitution exists The estimates are derived from a theoretical model of consumption which is based on inter‐temporal optimization in a stochastic environment. The estimates also suggest that private sector consumption behaviour is consistent with the joint hypothesis of rational expectations and Ricardian equivalence

Suggested Citation

  • Nils Olekalns, 1989. "Substitution Between Private and Public Consumption in Australia," The Economic Record, The Economic Society of Australia, vol. 65(1), pages 16-26, March.
  • Handle: RePEc:bla:ecorec:v:65:y:1989:i:1:p:16-26
    DOI: 10.1111/j.1475-4932.1989.tb00674.x
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    References listed on IDEAS

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    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    3. Odysseus Katsaitis, 1987. "On the Substitutability between Private Consumer Expenditure and Government Spending in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 20(3), pages 533-543, August.
    4. Michener, Ron, 1984. "Permanent income in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 297-305, May.
    5. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-127, March.
    6. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
    7. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
    8. Evans, Paul, 1987. "Do budget deficits raise nominal interest rates? : Evidence from six countries," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 281-300, September.
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    Cited by:

    1. T. D. Stanley, 1998. "New Wine in Old Bottles: A Meta‐Analysis of Ricardian Equivalence," Southern Economic Journal, John Wiley & Sons, vol. 64(3), pages 713-727, January.

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