Consumption and Government-Budget Finance in a High-Deficit Economy
14 Pages Posted: 29 Dec 2006 Last revised: 23 Jul 2010
Date Written: September 1986
This paper characterizes empirically how government budget variables, such as spending, taxes, and deficits, affected private-sector consumption in the high-budget-deficit economy of Israel during the first half of the 1980s. The paper develops and estimates an intertemporal optimizing model of consumption choice by finite-lived individuals. The evidence supports this formulation against the Ricardian infinite-horizon case, but it does not support it when compared to the unrestricted relations in the data.
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