Public Goods, Merit Goods, and the Relation Between Private and Government Consumption

U of Siena, Economics Working Paper No. 363

37 Pages Posted: 7 Oct 2002  

Riccardo Fiorito

University of Siena - Department of Economics

Tryphon Kollintzas

Athens University of Economics and Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2002

Abstract

In this paper, we investigate the relation between public and private consumption, by constructing a general government spending data set, by function, for twelve European Union countries. In particular, we split government consumption into two categories. The first category includes defense, public order, and justice ("public goods"). The second category includes health, education, and other services that could have been provided privately ("merit goods"). Equations from a relatively general theoretical model of household behavior are estimated by GMM. The estimates are fairly robust in showing that public goods substitute while merit goods complement private consumption, and, that the relation between merit goods and private goods is stronger than that between public goods and private goods. So that, in the aggregate government and private consumption are complements. It also suggests that the potential calibration/estimation bias by ignoring the composition of government consumption might be substantial.

Keywords: Public Goods, Merit Goods, Government Consumption, Dynamic Panel Estimation

JEL Classification: E6, H3, C33

Suggested Citation

Fiorito, Riccardo and Kollintzas, Tryphon, Public Goods, Merit Goods, and the Relation Between Private and Government Consumption (August 2002). U of Siena, Economics Working Paper No. 363. Available at SSRN: https://ssrn.com/abstract=326640 or http://dx.doi.org/10.2139/ssrn.326640

Riccardo Fiorito (Contact Author)

University of Siena - Department of Economics ( email )

Piazza S. Francesco, 7
Siena, I-53100
Italy
+39 5 7723 2610 (Phone)
+39 5 7723 2661 (Fax)

Tryphon Kollintzas

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+30 1 825 6998 (Phone)
+30 1 823 1725 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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