2010
DOI: 10.1111/j.1467-999x.2009.04084.x
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The Adverse Effect of Government Spending on Private Consumption in New Keynesian Models

Abstract: Empirical evidence shows that government spending crowds in private consumption, a Keynesian phenomenon. The current, state of the art, New Keynesian models based on optimizing households and firms are not able to predict such a result. In this paper, we critically analyse fiscal policy in these models using a graphical framework as well as a formal model. Extensions aimed at generating crowding in, like useful government spending or rule of thumb consumers, turn out to be inappropriate. We argue that introduc… Show more

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Cited by 4 publications
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“…This chapter is based onKühn et al (2010), forthcoming in Metroeconomica.2 SeeGoodfriend and King (1997) for a survey on this type of model.…”
mentioning
confidence: 99%
“…This chapter is based onKühn et al (2010), forthcoming in Metroeconomica.2 SeeGoodfriend and King (1997) for a survey on this type of model.…”
mentioning
confidence: 99%