Government Expenditures and the Permanent-Income Model

REVIEW OF ECONOMIC DYNAMICS 1, 719-730.

Posted: 25 Aug 1998 Last revised: 29 Mar 2013

See all articles by Robert A. Amano

Robert A. Amano

Bank of Canada & CREFE

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Date Written: 1998

Abstract

There is a substantial empirical literature which examines the relationship between private and public consumption. The conclusions from this literature, however, are generally mixed. In this paper, we attempt to provide some additional evidence on this relationship. We consider a two-good permanent-income model which allows us to estimate both the intraperiod and intertemporal elasticities of substitution. The estimation strategy proceeds in two steps. In the first step we use cointegration methods to estimate the intraperiod preference parameter, while in the second step we estimate the intertemporal parameter via a generalized method of moments. A useful implication of this approach is that it allows us to use the estimated preference parameters to shed some light on whether private and public consumptions are best described as complements, substitutes, or unrelated occurrences in a Edgeworth Pareto sense..

Keywords: permanent income, cointegration, government expenditure, consumption

JEL Classification: C22, E21

Suggested Citation

Amano, Robert A. and Wirjanto, Tony S., Government Expenditures and the Permanent-Income Model (1998). REVIEW OF ECONOMIC DYNAMICS 1, 719-730.. Available at SSRN: https://ssrn.com/abstract=6630

Robert A. Amano (Contact Author)

Bank of Canada & CREFE ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada
613-782-8827 (Phone)
613-782-7163 (Fax)

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

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