The Intra-Temporal Substitution between Government Expenditure and Private Consumption: Empirical Evidence from Bangladesh

15 Pages Posted: 4 Apr 2017

See all articles by Shaikh Haque

Shaikh Haque

Northern Illinois University

Ching Yang Lin

International University of Japan - Graduate School of International Relations

Koji Kotani

International University of Japan - Graduate School of International Relations

Date Written: June 30, 2016

Abstract

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

Suggested Citation

Haque, Shaikh and Lin, ching yang and Kotani, Koji, The Intra-Temporal Substitution between Government Expenditure and Private Consumption: Empirical Evidence from Bangladesh (June 30, 2016). Available at SSRN: https://ssrn.com/abstract=2943702 or http://dx.doi.org/10.2139/ssrn.2943702

Shaikh Haque

Northern Illinois University ( email )

DeKalb, IL 60115
United States

Ching yang Lin (Contact Author)

International University of Japan - Graduate School of International Relations ( email )

777 Kokusai-cho
Minami Uonuma-shi
Japan

Koji Kotani

International University of Japan - Graduate School of International Relations ( email )

777 Kokusai-Cho
Minami Uonuma Shi, Niigata-ken 949-7277
Japan

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