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Fiscal consumption and private consumption in Europe: what have we learned?

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  • Juan Carlos Cuestas
  • Mercedes Monfort

Abstract

In this paper we contribute to the long literature on how fiscal policy affects the real economy. In particular, we focus on how government consumption affects private consumption for a pool of European economies. We estimate panel vector error correction models between the two consumption variables for the EU 28 + Norway and Switzerland, for the two periods before and after 2008. The results show that government consumption affects private consumption differently in the periods before and after 2008. This means an increase in government consumption could have a positive impact on private consumption.

Suggested Citation

  • Juan Carlos Cuestas & Mercedes Monfort, 2023. "Fiscal consumption and private consumption in Europe: what have we learned?," Applied Economics Letters, Taylor & Francis Journals, vol. 30(14), pages 1930-1935, August.
    • Handle: RePEc:taf:apeclt:v:30:y:2023:i:14:p:1930-1935
    DOI: 10.1080/13504851.2022.2083765
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    References listed on IDEAS

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    1. Roberto Perotti, 1999. "Fiscal Policy in Good Times and Bad," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1399-1436.
    2. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    3. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    4. Pesaran, M. Hashem & Vanessa Smith, L. & Yamagata, Takashi, 2013. "Panel unit root tests in the presence of a multifactor error structure," Journal of Econometrics, Elsevier, vol. 175(2), pages 94-115.
    5. Florin O. Bilbiie & Tommaso Monacelli & Roberto Perotti, 2019. "Is Government Spending at the Zero Lower Bound Desirable?," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 147-173, July.
    6. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    8. repec:bla:obuest:v:61:y:1999:i:0:p:653-70 is not listed on IDEAS
    9. Juan Carlos Cuestas & Javier Ordóñez & Karsten Staehr, 2019. "Unit labour costs and the dynamics of output and unemployment in the southern European crisis countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(3), pages 597-616, August.
    10. Emmanuel Joel Aikins Abakah & Guglielmo Maria Caporale & Luis A. Gil-Alana, 2021. "The Impact of Containment Measures and Monetary and Fiscal Responses on US Financial Markets during the Covid-19 Pandemic," CESifo Working Paper Series 9163, CESifo.
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F15 - International Economics - - Trade - - - Economic Integration

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