Does Government Spending Crowd In Private Consumption? Theory and Empirical Evidence for the Euro Area
IMF Working Papers, August 1, 2005
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- Does Government Spending Crowd In Private Consumption? Theory and Empirical Evidence for the Euro Area
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Bibliographic details
- Authors: Günter Coenen, Roland Straub
- Published: August 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451861785.001
Study overview and methodology
- Authors: Günter Coenen, Roland Straub
- Publication date: August 1, 2005
- Paper type: IMF Working Papers, Working Paper No. 2005/159
- Model and methods:
- Estimated New-Keynesian DSGE model of the euro area.
- Model features non-Ricardian households.
- Estimation and inference conducted using Bayesian inference methods.
Main findings
- Presence of non-Ricardian households:
- Is in general conducive to raising the level of consumption in response to government spending shocks when compared with the benchmark specification without non-Ricardian households.
- Probability of crowding-in:
- There is only a fairly small chance that government spending shocks crowd in consumption.
- Reasons for limited crowding-in:
- The estimated share of non-Ricardian households is relatively low.
- A large negative wealth effect is induced by the highly persistent nature of government spending shocks.
Subjects and keywords
- Subject: Consumption, Disposable income, Expenditure, Fiscal policy, Labor
- Keywords: government spending, WP