The Intra-Temporal Substitution between Government Expenditure and Private Consumption: Empirical Evidence from Bangladesh
15 Pages Posted: 4 Apr 2017
Date Written: June 30, 2016
This paper investigates the relationship between government spending and private consumption of Bangladesh over the period 1973-2008. Based on a theoretical model of two-good permanent income which allows for random preference shocks in the consumer’s intra-period utility function, our analysis confirms that there is a cointegration relationship between government expenditure and private consumption. Furthermore, we identify that expansionary government spending incompletely crowds out private consumption with the degree of 0.31. This result suggests that people inversely rearrange their consumption in response to a change in government expenditure over time, although the degree of the response is still weak.
Keywords: Intra-Temporal, Consumption, Expenditure
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