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Cointegration, Government Spending and Private Consumption: Evidence from Japan

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  • Tsung‐Wu Ho

Abstract

Assuming a CRRA preference, this paper shows that there is a cointegration restriction implied by the intra‐temporal first‐order condition in the consumption function. This restriction predicts a cointegrated system of government consumption, private consumption, and their relative price. Our analysis indicates that, first, Johansen's VECM confirms the theoretical prediction that is supported by the data of Japan; moreover, Bierens’ (1997) nonparametric estimator severely contradicts with the theoretical model and fits the data poorly; second, Japanese people have increasing willingness to rearrange their consumption over time. Besides, the intratemporal relationship between private and government consumption remains relatively stable over time.

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  • Tsung‐Wu Ho, 2004. "Cointegration, Government Spending and Private Consumption: Evidence from Japan," The Japanese Economic Review, Japanese Economic Association, vol. 55(2), pages 162-174, June.
    • Handle: RePEc:bla:jecrev:v:55:y:2004:i:2:p:162-174
    DOI: 10.1111/j.1468-5876.2004.t01-1-00300.x
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    Cited by:

    1. Omoshoro-Jones, Oyeyinka Sunday, 2016. "A Cointegration and Causality Test on Government Expenditure –Economic Growth Nexus: Empirical Evidence from a South African Province," MPRA Paper 102085, University Library of Munich, Germany, revised 17 Oct 2017.
    2. Hao-Chen Huang & Chen-Lin Yuan & Ting-Hsiu Liao, 2022. "The Spatial Spillover Effects of Fiscal Expenditures and Household Characteristics on Household Consumption Spending: Evidence from Taiwan," Economies, MDPI, vol. 10(9), pages 1-16, September.
    3. Julian Thimme, 2017. "Intertemporal Substitution In Consumption: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 226-257, February.

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