Fiscal consumption and private consumption in Europe: what have we learned?

ABSTRACT

In this paper we contribute to the long literature on how fiscal policy affects the real economy. In particular, we focus on how government consumption affects private consumption for a pool of European economies. We estimate panel vector error correction models between the two consumption variables for the EU 28 + Norway and Switzerland, for the two periods before and after 2008. The results show that government consumption affects private consumption differently in the periods before and after 2008. This means an increase in government consumption could have a positive impact on private consumption.

KEYWORDS:

• Private consumption
• fiscal policy
• crisis
• great moderation

JEL CLASSIFICATION:

• C22
• F15

Acknowledgments

Mercedes Monfort acknowledges the financial support from the University Jaume I research project UJI-B2020-16. Juan Carlos Cuestas acknowledges the financial support from the Generalitat Valenciana project AICO2021/005.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The results are available on request.

Additional information

Funding

This work was supported by the Generalitat Valenciana [AICO2021/005]; Universitat Jaume I [UJI-B2020-16].