The link between government spending, consumer confidence and consumption expenditures in emerging market countries

Abstract

The impact of government spending on private consumption is extensively studied in the literature. However, the main theme of these studies is the possible crowding-in or crowding-out impact of government spending on consumer spending. This paper attempts to introduce a new variable to this well-known literature by investigating the existence of a relationship between government expenditure, consumer spending and consumer confidence for a group of emerging market countries. We examine whether a change in consumer confidence causes any change in government spending. Moreover, we analyze whether there is a feedback from government spending and private consumption to consumer confidence. Our empirical findings demonstrate the important role of consumer confidence on government spending and private consumption expenditures

Fiscal rules compliance and trust in institution in Eurozone: The case of European Central Bank

“…If this relation were true, an increase in trust during periods of fiscal consolidation programmes should be detected. A reverse causality was detected by Yasemin Özerkek and Sadullah Çelik (2010). Furthermore, Klaus Armigeon, Kai Guthmann, and David Weisstanner (2016) found a direct link between internal devaluation and the lack of support for both national and supranational governments in the Eurozone -individuating in the impossibility to choose between alternatives, which is the key to interpret the weakening of democracy in the last years.…”

Does Consumer Confidence Forecast Household Saving and Borrowing Behavior? Evidence for Poland

“…The results on the predictability of consumer attitudes toward consumer spending are somewhat mixed. The effect of consumer sentiment on consumption has been analyzed by, among others, Carroll et al ( 1994 ), Kwan and Cotsomitis ( 2004 ), Ludvigson ( 2004 ), Easaw et al ( 2005 ), Kwan and Cotsomitis ( 2006 ), Malgarini and Margani ( 2007 ), Celik and Ozerkek ( 2009 ), Özerkek and Çelik ( 2010 ), Bruno ( 2014 ), Lachowska ( 2013 ), and Lahiri et al ( 2015 ). Most of these studies, but not all, have focused on the USA.…”

The impact of Chinese public expenditures on household investment in risky financial assets: Evidence from a national survey

“…Furthermore, our study supplements current research on the impact of public expenditures on household financial decisions. Motivated by the widely discussed positive impact of government spending on private consumption and the well‐founded evidence of consumer confidence being one of the driving forces amid this relationship (Blanchard & Perotti, 2002; Çelik & Özerkek, 2010; Karras, 1994), our study finds evidence that public expenditures influence not only consumption decisions but also households' investment decisions. Based on the relative income hypothesis (Duesenberry, 1951), we construct a behavioral factor to serve as a proxy for households' overconfidence in financial well‐being by evaluating their subjective well‐being relative to their actual socioeconomic status.…”

“…Although the theoretical and empirical literature on the mechanism of how public expenditures affect households' investment in financial assets is thin, the impact of government spending on private consumption has been one of the widely discussed issues in the macroeconomics literature. Empirical evidence has shown a positive relationship between government spending and private consumption, with consumer confidence being one of the driving forces amid this relationship (Blanchard & Perotti, 2002; Çelik & Özerkek, 2010; Karras, 1994). The increase in consumer confidence often reflects consumers' increasing optimism about future economic conditions, and private consumption goes up accordingly (Çelik & Özerkek, 2010).…”

“…Empirical evidence has shown a positive relationship between government spending and private consumption, with consumer confidence being one of the driving forces amid this relationship (Blanchard & Perotti, 2002; Çelik & Özerkek, 2010; Karras, 1994). The increase in consumer confidence often reflects consumers' increasing optimism about future economic conditions, and private consumption goes up accordingly (Çelik & Özerkek, 2010). On that account, household confidence is a critical factor in transmitting public policies into real economic activities (Bachmann & Sims, 2012).…”