Consumption multipliers of different types of public spending: a structural vector error correction analysis for the UK

Marattin, Luigi ; Salotti, Simone (2010) Consumption multipliers of different types of public spending: a structural vector error correction analysis for the UK. Bologna: Dipartimento di Scienze economiche DSE, p. 31. DOI 10.6092/unibo/amsacta/4522. In: Quaderni - Working Paper DSE (719). ISSN 2282-6483.
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Abstract

The aim of this paper is to investigate the relationship between government spending and private consumption in the UK, for which there is scarce previous empirical evidence. We disaggregate public expenditure into three categories and search for the corresponding private consumption multipliers. Our analysis includes the estimation of a structural vector error correction (SVEC) model, using quarterly non-interpolated data for the period 1981:1 – 2007:4. Initially, we estimate negative effects on consumption of shocks to total public spending. Then, using the spending decomposition, we find that while shocks to public wages crowd-out private consumption as predicted by neoclassical models, shocks to the non-systematic component of social spending and government purchases of goods and services generate a positive reaction, so to crowd-in private consumption. Thus, the qualitative and quantitative dimensions of fiscal multipliers on private consumption change across different public spending categories. Our findings suggest that any empirical support of competing theoretical models on the issue would benefit from a disaggregation of government expenditure, rather than focusing on the aggregate measure.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Marattin, Luigi
Salotti, Simone
Keywords
Fiscal policy, Cointegration, Structural VECM, Subset SVECM
Subjects
ISSN
2282-6483
DOI
Deposit date
02 Feb 2016 11:42
Last modified
02 Feb 2016 11:42
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