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Testing separability of public consumption in household decisions

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  • Luca Pieroni
  • David Aristei

Abstract

In this paper we propose a sequential strategy, based on the microeconomic approach of the demand theory, in order to test for separability between private and public consumption. The aim of the present work is to verify, using a conditional almost ideal demand system, whether the different components of public consumption exert conditioning effects on the allocative structure of private spending. The empirical estimation of the model and the separability tests are developed for both a demand system in five functional categories of private spending, and for a demand system in six categories, where the private expenditures on those goods and services which can also be offered by the public sector are enclosed in a single functional category. The results of the separability tests, obtained using UK data for the 1974-2000 period, show that public individual consumption plays an important role in modifying consumer choices, while public collective consumption does not affect private consumption behaviours. The relationships between the different components of private spending and public individual consumption are both of substitutability and complementarity; in particular, we find that public individual consumption and the corresponding private expenditures on 'Health, education, recreation and social protection' are complements.

Suggested Citation

  • Luca Pieroni & David Aristei, 2005. "Testing separability of public consumption in household decisions," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(2), pages 199-218.
  • Handle: RePEc:taf:irapec:v:19:y:2005:i:2:p:199-218
    DOI: 10.1080/02692170500031331
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    References listed on IDEAS

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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. David Aristei & Luca Pieroni, 2005. "Estimating the Role of Government Expenditure in Long-run Consumption," Quaderni del Dipartimento di Economia, Finanza e Statistica 13/2005, Università di Perugia, Dipartimento Economia.

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    More about this item

    Keywords

    Consumer demand; government consumption; non-separability; demand systems; JEL Classification: D1; H3; H4;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H4 - Public Economics - - Publicly Provided Goods

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