Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259827 
Year of Publication: 
1999
Series/Report no.: 
Working Paper No. 1999:3
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
We develop an alternative test of the `German view' - that a reduction in government consumption may lead to an immediate private consumption boom - derived from an open-economy permanent income model. In our empirical study we find, in accordance with the `German view', that an anticipated permanent reduction of government consumption is associated with a strong short-run (and permanent) increase in private consumption. However, the Danish experience following the fiscal contraction in 1982 suggest that this was not a dominant factor behind the private consumption boom. Our evidence shows instead that other factors increasing permanent income, including a substantial terms-of-trade improvement, were much more important.
Subjects: 
Expansionary fiscal contraction
German view
consumption booms
structural shocks
JEL: 
E21
E62
E65
Document Type: 
Working Paper

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