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Effects of Deficit Finance on Consumption: A Study of Central and Eastern European Countries

Author

Listed:
  • Anton Gerunov

    (Sofia University, Bulgaria)

Abstract

The effect of deficit finance on consumption is a key issue for fiscal policy. We test empirically the influence of deficit and sovereign debt on house­hold consumption in the Central and Eastern Euro­pean countries over the period 1995-2014. Under numerous alternative model specifications we find a small negative effect on consumption exerted by the mounting debt. Households react in accor­dance with the Barro-Ricardo hypothesis by com­pensating increased public debt with a decrease in consumption expenditure. This leads to diminished effectiveness of debt-financed fiscal policy as sov­ereign debt increases

Suggested Citation

  • Anton Gerunov, 2015. "Effects of Deficit Finance on Consumption: A Study of Central and Eastern European Countries," Ikonomiceski i Sotsialni Alternativi, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 21-33, December.
    • Handle: RePEc:nwe:iisabg:y:2015:i:4:p:21-33
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    More about this item

    Keywords

    public finance; deficit; deficit finance; sovereign debt;
    All these keywords.

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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