Private Sector Consumption and Government Consumption and Debt in Advanced Economies an Empirical Study

28 Pages Posted: 1 Feb 2011

See all articles by Rina Bhattacharya

Rina Bhattacharya

International Monetary Fund (IMF)

Sanchita Mukherjee

San Jose State University

Date Written: November 2010

Abstract

This paper explores the hypothesis that the propensity to consume out of income varies in a non-linear fashion with fiscal variables, and in particular with government debt per capita. Using data from eighteen OECD countries the paper 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. Our results provide support for this hypothesis, and also suggest that private and government consumption are substitutes in the household utility function.

Keywords: Consumption, Cross country analysis, Developed countries, Economic models, Fiscal consolidation, Fiscal policy, Income, Private sector, Public debt, Sovereign debt

Suggested Citation

Bhattacharya, Rina and Mukherjee, Sanchita, Private Sector Consumption and Government Consumption and Debt in Advanced Economies an Empirical Study (November 2010). IMF Working Paper No. 10/264, Available at SSRN: https://ssrn.com/abstract=1751376

Rina Bhattacharya

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Sanchita Mukherjee (Contact Author)

San Jose State University ( email )

San Jose, CA 95192-0066
United States

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