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Government Consumption (government + consumption)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting83%

Selected Abstracts

Expansionary Fiscal Shocks and the US Trade Deficit,

INTERNATIONAL FINANCE, Issue 3 2005
Christopher J. Erceg
In this paper, we use a dynamic general equilibrium model of an open economy to assess the quantitative effects of fiscal shocks on the trade balance in the United States. We examine the effects of two alternative fiscal shocks: a rise in government consumption, and a reduction in the labour income tax rate. Our salient finding is that a fiscal deficit has a relatively small effect on the US trade balance, irrespective of whether the source is a spending increase or tax cut. In our benchmark calibration, we find that a rise in the fiscal deficit of 1 percentage point of gross domestic product (GDP) induces the trade balance to deteriorate by 0.2 percentage point of GDP or less. Noticeably larger effects are only likely to be elicited under implausibly high values of the short-run trade price elasticity, or of the share of liquidity-constrained households in the economy. From a policy perspective, our analysis suggests that even reducing the current US fiscal deficit (of 3% of GDP) to zero would be unlikely to narrow the burgeoning US trade deficit significantly. [source]

Aid heterogeneity: looking at aid effectiveness from a different angle

JOURNAL OF INTERNATIONAL DEVELOPMENT, Issue 8 2005
George Mavrotas
The paper uses an aid disaggregation approach to examine the impact of different aid modalities on the fiscal sector of the aid-recipient country. It uses time-series data on different types of development aid (project aid, programme aid, technical assistance and food aid) for Uganda, an important aid recipient in recent years, to estimate a model of fiscal response in the presence of aid which combines aid heterogeneity and endogenous aid. The empirical findings clearly suggest the importance of the above approach for delving deeper into aid effectiveness issues since different aid categories have different effects on key fiscal variables,an impact that could not be revealed if a single figure for aid were employed. Project and food aids appear to cause a reduction in public investment whereas programme aid and technical assistance are positively related to public investment. The same applies for government consumption. A negligible impact on government tax and non-tax revenues, and a strong displacement of government borrowing are also found. Copyright © 2005 John Wiley & Sons, Ltd. [source]

Government Spending and the Taylor Principle

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 1 2009
GISLE JAMES NATVIK
public expenditures; Taylor principle; fiscal policy rules; rule-of-thumb consumers This paper explores how government size affects the scope for equilibrium indeterminacy in a New Keynesian economy, where part of the population live hand-to-mouth. The main result is that a higher level of public consumption is likely to generate indeterminacy and render the Taylor principle insufficient as criterion for equilibrium uniqueness. This holds even though fiscal policy serves to reduce swings in current income. Only if government consumption is a substitute for private consumption, will it narrow the scope for indeterminacy. Hence monetary policy should be conducted with an eye to the amount and composition of government consumption. [source]

Cointegration, Government Spending and Private Consumption: Evidence from Japan

THE JAPANESE ECONOMIC REVIEW, Issue 2 2004
Tsung-Wu Ho
Assuming a CRRA preference, this paper shows that there is a cointegration restriction implied by the intra-temporal first-order condition in the consumption function. This restriction predicts a cointegrated system of government consumption, private consumption, and their relative price. Our analysis indicates that, first, Johansen's VECM confirms the theoretical prediction that is supported by the data of Japan; moreover, Bierens' (1997) nonparametric estimator severely contradicts with the theoretical model and fits the data poorly; second, Japanese people have increasing willingness to rearrange their consumption over time. Besides, the intratemporal relationship between private and government consumption remains relatively stable over time. [source]

Assessing the Equilibrium Exchange Rate of the Malaysian Ringgit: A Comparison of Alternative Approaches

ASIAN ECONOMIC JOURNAL, Issue 2 2008
Isabell Koske
F3; F31; F32 Drawing on the behavioral equilibrium exchange rate and the fundamental equilibrium exchange rate approaches, this paper assesses the equilibrium value of the real effective exchange rate of the Malaysian ringgit over the past 25 years. For 2005, when the Malaysian authorities exited from the peg with the US dollar, both models determine a slight undervaluation of the currency. Openness and real GDP per capita have been the main drivers of real exchange rate movements in the past, although non-tradable productivity, government consumption, and net foreign assets have also had a sizable impact. The paper also highlights the limitations of applying the two approaches in the context of emerging countries. [source]

The Intratemporal Substitution between Government Spending and Private Consumption: Empirical Evidence from Taiwan

ASIAN ECONOMIC JOURNAL, Issue 3 2001
Ru-Lin ChiuArticle first published online: 18 DEC 200
In this paper, we investigate the idea that a general model of consumption should allow for the direct effect of government consumption. We show, given an assumed preference specification, that there is a cointegration restriction implied by an intraperiod first-order condition of the model. This restriction leads to a linear deterministic cointegrated system of government consumption, private consumption and their relative price that is consistent with the data for Taiwan. The intratemporal elasticity of substitution between government and private consumption is estimated to be about 1.1. Overall, we find consistent empirical evidence in support of our model. [source]