## Does Government Spending Crowd In Private Consumption? Theory and Empirical Evidence for the Euro Area

_IMF Working Papers, August 1, 2005_

## Source details

**Canonical URL:** [Does Government Spending Crowd In Private Consumption? Theory and Empirical Evidence for the Euro Area](https://www.imf.org/en/publications/wp/issues/2016/12/31/does-government-spending-crowd-in-private-consumption-theory-and-empirical-evidence-for-the-18359)

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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

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### 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

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/does-government-spending-crowd-in-private-consumption-theory-and-empirical-evidence-for-the-18359_