Does the expansionary government spending crowd out the private consumption? Cointegration analysis in panel data

Chien Chung Nieh, Tsung Wu Ho

Research output: Contribution to journalArticlepeer-review

19 Citations (Scopus)

Abstract

That whether expansionary government spending crowds out private consumption is examined by evaluating the intra-temporal elasticity of substitution between them. Using annual data (1981-2000) of 23 OECD countries, a linear deterministic cointegration relation between private consumption, government spending and their relative price is supported. We have two findings: First, the panel estimators plausibly compute the parameter estimates in general. Second, when cross-sectional correlation is considered by using a SUR estimator, the statistical significance of panel cointegration is improved. Thirdly, the intra-temporal elasticity of substitution indicates that government and private consumption are found to be complements, which shows that expansionary government spending does not crowd out private consumption.

Original languageEnglish
Pages (from-to)133-148
Number of pages16
JournalQuarterly Review of Economics and Finance
Volume46
Issue number1
DOIs
Publication statusPublished - 2006 Feb
Externally publishedYes

Keywords

  • Intratemporal substitution
  • Panel cointegration
  • SUR
  • Two-step estimator

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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