Fiscal Policy And The Composition Of Private Consumption: Some Evidence From The U.A. And Canada

Abstract

This paper develops a generalized version of the life-cycle model in which consumers' preferences are defined over components of consumption and are affected by the level of public expenditure on goods and services. The model implies that the crowding out of private consumption could in fact be a direct demand side phenomenon caused by the way preferences respond to a change in public spending. Evidence from U.S. and Canadian data for the period 1935-1995 confirms this theoretical conjecture as well as implying that in both countries demand for durable goods is likely to show relatively large swings which may undermine the stability of the sector and harm the supply side. [E22. E62].

^*The authors would like to thank Julia Darby, Søren Neilsen, Apostolis Philippopolous, Lee Redding, Ulrich Woitek, and participants in EPRU (Copenhagen Business School) and the ESEM98 (Berlin) for their helpful comments on earlier drafts of this paper. The usual disclaimer applies.

^*The authors would like to thank Julia Darby, Søren Neilsen, Apostolis Philippopolous, Lee Redding, Ulrich Woitek, and participants in EPRU (Copenhagen Business School) and the ESEM98 (Berlin) for their helpful comments on earlier drafts of this paper. The usual disclaimer applies.

Notes

^*The authors would like to thank Julia Darby, Søren Neilsen, Apostolis Philippopolous, Lee Redding, Ulrich Woitek, and participants in EPRU (Copenhagen Business School) and the ESEM98 (Berlin) for their helpful comments on earlier drafts of this paper. The usual disclaimer applies.