Private Sector Consumption Behavior and Non-Keynesian Effects of Fiscal Policy

28 Pages Posted: 15 Feb 2006

Date Written: August 1999

Abstract

This paper explores the hypothesis that the propensity to consume out of income is not constant but varies, perhaps in a nonlinear fashion, with fiscal variables. It 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. The paper also examines the possibility of a relationship (along the lines of the Bertola-Drazen model) between the propensity to consume out of income and the government consumption-to-GDP ratio.

Keywords: fiscal policy government debt government consumption Ricardian behavior non-Keynesian effects

JEL Classification: E21 E62 H69

Suggested Citation

Bhattacharya, Rina, Private Sector Consumption Behavior and Non-Keynesian Effects of Fiscal Policy (August 1999). IMF Working Paper No. 99/112, Available at SSRN: https://ssrn.com/abstract=880639

Rina Bhattacharya (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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