Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/159560
Authors: 
Marattin, Luigi
Salotti, Simone
Year of Publication: 
2010
Series/Report no.: 
Quaderni - Working Paper DSE 719
Abstract: 
The aim of this paper is to investigate the relationship between government spending and private consumption in the UK, for which there is scarce previous empirical evidence. We disaggregate public expenditure into three categories and search for the corresponding private consumption multipliers. Our analysis includes the estimation of a structural vector error correction (SVEC) model, using quarterly non-interpolated data for the period 1981:1 – 2007:4. Initially, we estimate negative effects on consumption of shocks to total public spending. Then, using the spending decomposition, we find that while shocks to public wages crowd-out private consumption as predicted by neoclassical models, shocks to the non-systematic component of social spending and government purchases of goods and services generate a positive reaction, so to crowd-in private consumption. Thus, the qualitative and quantitative dimensions of fiscal multipliers on private consumption change across different public spending categories. Our findings suggest that any empirical support of competing theoretical models on the issue would benefit from a disaggregation of government expenditure, rather than focusing on the aggregate measure.
JEL: 
E62
H30
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0/
Document Type: 
Working Paper

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