Private Sector Consumption Behavior and Non-Keynesian Effects of Fiscal Policy

August 1, 1999

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper explores the hypothesis that the propensity to consume out of income is not constant but varies, perhaps in a nonlinear fashion, with fiscal variables. It examines whether there is any empirical evidence to support the hypothesis that households move from non-Ricardian to Ricardian behavior as government debt reaches high levels and as uncertainty about future taxes increases. The paper also examines the possibility of a relationship (along the lines of the Bertola-Drazen model) between the propensity to consume out of income and the government consumption-to-GDP ratio.

Subject: Consumption, Expenditure, Government consumption, Income, National accounts, Private consumption, Public debt

Keywords: debt stabilization programme, fiscal policy, GDP ratio, government, government consumption, government debt, household income, Income, non-Keynesian effects, panel data estimation technique, Private consumption, Ricardian behavior, WP

Pages:
28
Volume:
1999
DOI:
https://doi.org/10.5089/9781451853582.001
Issue:
112
Series:
Working Paper No. 1999/112
Stock No:
WPIEA1121999
ISBN:
9781451853582
ISSN:
1018-5941

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