The government spending and private consumption: A panel cointegration analysis

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21 Citations (Scopus)

Abstract

In this article, whether an increase in government spending will crowd out the private consumption is re-examined. This article augments the empirical literature by extending this issue to panel data. The empirical framework applies the panel cointegration model, dynamic OLS (DOLS), proposed by Kao and Chiang [On the estimation and inference of a cointegrated regression in panel data. Working Paper, Economics Department, Syracuse University, 1999.]. Evidence from 24 OECD countries indicates a significant degree of substitutability between government spending and private consumption when the real disposable income is included, which rejects the permanent income hypothesis. The existence of crowding out renders the Keynesian plea for expansionary fiscal policy unconvincing.

Original languageEnglish
Pages (from-to)95-108
Number of pages14
JournalInternational Review of Economics and Finance
Volume10
Issue number1
DOIs
Publication statusPublished - 2001 Dec
Externally publishedYes

Keywords

  • C22
  • Crowding-out
  • Dynamic OLS
  • E21
  • Fiscal multiplier
  • Panel cointegration

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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