Can government spending increase private consumption? The role of complementarity

Ganelli, Giovanni; Tervala, Juha

doi:10.1016/j.econlet.2009.01.007

Cited by 33 publications

(33 citation statements)

References 7 publications

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“…We shall first model the locality in line with Hoyt [2] to combine it next with the modeling of the burgher following Ganelli and Tervala [7].…”

Section: The Modelmentioning

confidence: 99%

“…Private investments in a locality create jobs and incomes to be consumed while public expenditures by a locality aim at satisfying burgher demand for the goods provided through them. Evoking upon the complementarity between private and public consumption in the sense of private consumption responding positively to an increase in public spending (Fiorito and Kollintzas [4], Linnemann [5], Bouakez and Rebei [6], Ganelli and Tervala [7]), this paper maintains that the optimum tax is simply the one which maximizes the individual utility from these two consumption types on the proviso that this is the aim of local governments as well. Much more so when complementarity (as opposed to substitutability) is certainly the case with the public goods that are rival in consumption and whose positive externalities depend on distributional and demographic characteristics as is this case with the local public goods.…”

Section: Introductionmentioning

confidence: 99%

“…In what follows, what is done analytically is to merge Hoyt's [2] model of the local finances with Ganelli and Tervala's [7] approach to private-public consumption complementarity. What we find then is that foot voting and tax competition become extinct when the tax structure across jurisdictions is the one forging close local ties for the burgher.…”

Section: Introductionmentioning

confidence: 99%

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Local Taxation, Private-Public Consumption Complementarity, and the Optimal Number of Jurisdictions

Soldatos¹

2014

TEL

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Viewing local finances under the approach to private-public consumption complementarity, we conclude that foot voting and tax competition become extinct when the (capital) tax structure across jurisdictions is the one forging close ties between the burgher and his/her jurisdiction. The attachment of the burgher to the local public goods offered and to the local business activity prevents labor and capital mobility. The optimal number of jurisdictions is that which is conducive to the adoption of that local taxation that fosters such an attachment; taxation made possible by capitalizing upon private-public consumption complementarity. The intuitive appeal of this result is then contemplated within the broader framework of fiscal policymaking accommodative of citizen heterogeneity. In view of complementarity, there appears to be scope for decentralized treatment of citizen preferences via the localities, leaving the treatment of endowment differences to the central government.

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“…We shall first model the locality in line with Hoyt [2] to combine it next with the modeling of the burgher following Ganelli and Tervala [7].…”

Section: The Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Local Taxation, Private-Public Consumption Complementarity, and the Optimal Number of Jurisdictions

Soldatos¹

2014

TEL

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“…Tervala [8] indicate that an increase in government spending can cause a rise in private consumption. On the other hand, some of the previous work in this area takes particular note of the supply side, that is, the productivity of government spending was formulated by Barro [9].…”

Section: Introductionmentioning

confidence: 99%

“…This has been achieved by combining the standpoints of Ganelli and Tervala [8] and Tervala [13] for creating a simple, minimal model in which government spending has both productivity and complementarity. In particular, we show that the sole presence of complementarity is less likely to generate a positive response for private consumption, and that productivity is also required, even if it takes minimal values.…”

Section: Introductionmentioning

confidence: 99%

A Comprehensive Analysis of the Response of Private Consumption to Government Spending

Funashima¹

2017

TEL

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This paper considers a simple model in which government spending is productive and has a complementary relationship with private consumption to study the response of the latter to government spending. We discuss how these two characteristics can yield empirical observations that indicate a positive response of private consumption to government spending. By assuming some plausible parameter settings, we demonstrate that these dual aspects of government spending, which are normally treated separately in the literature, are inseparably linked. Our findings reveal that in addition to the presence of complementarity, productivity-even if minimal-increases the likelihood of generating a positive consumption response.

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Consumption multipliers of different types of public spending: a structural vector error correction analysis for the UK

Marattin

Salotti

2013

Empir Econ

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Abstract. The aim of this paper is to investigate the relationship between government spending and private consumption in the UK, for which there is scarce previous empirical evidence. We disaggregate public expenditure into three categories and search for the corresponding private consumption multipliers. Our analysis includes the estimation of a structural vector error correction model, using quarterly non-interpolated data for the period 1981:1 -2007:4. Initially, we estimate negative (and barely significant) effects on consumption of shocks to total public spending. Then, using the spending breaking down, we find that while shocks to public wages crowd-out private consumption as predicted by neoclassical models, shocks to the non-systematic component of social spending and government purchases of goods and services generate a positive reaction, so to crowd-in private consumption. Thus, the qualitative and quantitative dimensions of fiscal multipliers on private consumption change across different public spending categories. Our findings suggest that any empirical support of competing theoretical models on the issue would benefit from a disaggregation of government expenditure, rather than focusing on the aggregate measure.

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Can government spending increase private consumption? The role of complementarity

Cited by 33 publications

References 7 publications

Local Taxation, Private-Public Consumption Complementarity, and the Optimal Number of Jurisdictions

Local Taxation, Private-Public Consumption Complementarity, and the Optimal Number of Jurisdictions

A Comprehensive Analysis of the Response of Private Consumption to Government Spending

Consumption multipliers of different types of public spending: a structural vector error correction analysis for the UK

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