Private Sector Consumption Behavior and Non-Keynesian Effects of Fiscal Policy
28 Pages Posted: 15 Feb 2006
Date Written: August 1999
This paper explores the hypothesis that the propensity to consume out of income is not constant but varies, perhaps in a nonlinear fashion, with fiscal variables. It examines whether there is any empirical evidence to support the hypothesis that households move from non-Ricardian to Ricardian behavior as government debt reaches high levels and as uncertainty about future taxes increases. The paper also examines the possibility of a relationship (along the lines of the Bertola-Drazen model) between the propensity to consume out of income and the government consumption-to-GDP ratio.
Keywords: fiscal policy government debt government consumption Ricardian behavior non-Keynesian effects
JEL Classification: E21 E62 H69
Suggested Citation: Suggested Citation