integrated regressors and tests of the permanent income hypothesis abstract we use recent research on estimation and testing in the presence of unit roots to argue that hall s 1978 t and f tests of whether consumption is predicted by lagged income or by lags of consumption beyond the first are asymptotically valid a monte carlo experiment suggests that the asymptotic t and f distributions provide a good approximation to the actual finite sample distribution

market structure and fiscal policy effectiveness in a monopolistic competition macromodel with endogenous market structure the fiscal multiplier is shown to consist of two components the first depicts the response of output to a fiscal expansion through the conventional channels that disregard the role of market imperfections the second component captures the effects of firms market power as well as the policy induced change in market structure the latter effect which has not been taken into account in existing studies is shown to be quite significant in raising the fiscal multiplier even above unity and in improving consumers welfare when the labour market is competitive

concession bargaining the meaning of union gains the article reports on a study which measured the indirect impact of union gains or concession bargaining on the economic interests of firms a discussion is presented about various categories and

government spending taxation of interest and private saving an empirical analysis using greek aggregate data abstract following campbell and mankiw 1989 i derive an approximate consumption function by log linearizing the budget constraint and the first order condition for intertemporal utility maximization of a representative consumer using annual aggregate data from greece 1960 1990 i find some evidence that an increase in government spending that is viewed as temporary and an increase in taxation of interest that is viewed as permanent may have considerable negative effects on current private saving

government spending and the taylor principle this paper explores how government size affects the scope for equilibrium indeterminacy in a new keynesian economy where part of the population live hand to mouth the main result is that a higher level of public consumption is likely to generate indeterminacy and render the taylor principle insufficient as criterion for equilibrium uniqueness this holds even though fiscal policy serves to reduce swings in current income only if government consumption is a substitute for private consumption will it narrow the scope for indeterminacy hence monetary policy should be conducted with an eye to the amount and composition of government consumption

explaining interfirm cooperation and performance toward a reconciliation of predictions from the resource based view and organizational economics interfirm cooperation and its performance implications are examined in the context of two widely cited theoretical approaches to organizations broadly speaking the resource based view suggests that firms seek to capitalize on and increase their capabilities and endowments whereas organizational economics asserts that firms focus on minimizing the costs of organizing although these perspectives agree on managers likely actions in many areas their predictions diverge when interfirm cooperation is considered we take a step toward reconciling these differences by positing that firms place resource based concerns in front of considerations from organizational economics when deciding whether or not to engage in interfirm cooperation we examined this prediction using data from 94 publicly held restaurant chains the results support our integrated view but also suggest that giving primacy to resource concerns detracts from the performance of some firms we derive several implications of these findings in an effort to guide subsequent inquiry copyright 1999 john wiley sons ltd

by force of demand explaining cyclical fluctuations of international trade and government spending abstract this paper explores the role of demand shocks as an alternative to productivity shocks in driving both domestic and international business cycles within the international real business cycle irbc framework in addition to those well documented domestic business cycle fluctuations e g the volatility and cyclicality of output consumption investment labor hours and labor productivity and international business cycle properties e g the countercyclical net export and the comovement puzzle this paper focuses on two additional stylized facts in the industrialized countries the procyclical trade openness the gdp fraction of trade volume and the countercyclical government size the gdp fraction of government spending using a parsimonious dynamic stochastic general equilibrium model we show that the model s predictions under productivity shocks are not consistent with these facts instead a demand shock driven model replicates the above facts while matching other domestic and international business cycle properties an estimated version of the model confirms the quantitatively important impacts of demand shocks

can government spending increase private consumption the role of complementarity abstract it is empirically observed that private consumption responds positively to fiscal shocks we offer an explanation for this stylized fact based on the idea of complementarity between public and private consumption

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

great recession slow recovery and muted fiscal policies in the us this paper reconsiders the role of macroeconomic shocks and policies in determining the great recession and the subsequent recovery in the us the great recession was mainly caused by a large demand shock and by the zlb on the interest rate policy in contrast with previous findings the subsequent jobless recovery is explained by the zlb effect we estimate a fraction of non ricardian households which is close to 50 and obtain comparatively large fiscal multipliers however we cannot detect a significant contribution of fiscal policies in stabilizing the us economy for instance the 2007 2009 large increase in expenditure to gdp ratios was apparently determined by the adverse non policy shocks that caused the recession

why does private consumption rise after a government spending shock recent empirical evidence suggests that private consumption is crowded in by government spending this outcome violates existing macroeconomic theory according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption

victims and shareholders the dilemmas of presenting corporate policy during a crisis corporate crises such as accidents scandals and product safety incidents exacerbate stakeholder demands in such a way that conflict can arise between the interests of shareholders and crisis vict

evidence on the substitutability between government purchases and consumer spending within specific spending categories abstract this paper examines the response of consumer spending to government purchases within four spending categories education health housing and transportation estimation suggests they are either complements or independent and confidence intervals exclude large estimates of substitutability found in the literature

divestiture market valuation and strategy an empirical study of 78 divestitures examines the relationship between type of divestiture and financial market valuation it was found that divestitures linked to corporate or business level stra

liquidity constraints and the substitutability between private and government consumption the role of military and non military spending i introduction using data for a number of economies we investigate i the relationship between private consumption and two types of government spending military and non military and ii the severity of liquidity constraints because of their importance for macroeconomic modeling in theory and practice 1 both issues have been the subjects of considerable theoretical and empirical investigation on the issue of liquidity constraints the most influential research has relied on hall s 1978 euler equation approach to the permanent income hypothesis in an attempt to reconcile hall s and flavin s 1981 methodologies hayashi 1982 modified hall s martingale result to allow for the possibility that a subset of consumers are liquidity constrained and showed that liquidity constraints can result in consumption s excess sensitivity to current income campbell and mankiw 1989 1990 1991 and jappelli and pagano 1989 have applied hayashi s methodology using data from the u s and several other oecd countries on the substitutability issue aschauer 1985 has modified hall s euler equation to allow for substitutability between government spending and private consumption and found that the two are substitutes for the u s karras 1994 however using a similar approach and data for 30 countries concludes that private and government consumption are better described as complementary or unrelated liquidity constraints and substitutability have been combined in studies by graham and himarios 1991 cushing 1992 and graham 1993 using u s data and by evans and karras 1996 for a number of countries a crucial limitation of most of these studies is the use of aggregate government consumption data which counterintuitively imposes a common substitutability parameter on all components of government spending 2 using recently available time series data for a large number of countries the present paper relaxes this restriction by decomposing government consumption into military and non military components enabling us to separately identify their relationship to private consumption the allocation of government consumption between military and non military functions has varied greatly across countries the appendix reports the average size of military and non military government shares in gdp as well as the military non military ratio by country over the 1970 1989 period average military expenditure as a fraction of gdp for example has ranged in our sample from 0 11 in mexico to 12 30 in jordan similarly the fraction of government consumption absorbed by military expenditure has ranged from 1 09 in mauritius to 66 82 in poland this sizable variability is promising in terms of cross sectional identification power but it also suggests that the estimated parameters must not be assumed to be common across countries the estimated model is derived in section ii which combines liquidity constraints and substitutability by nesting the approaches of hayashi 1982 and aschauer 1985 in the same section we discuss data sources and the estimation strategy which permits the estimated parameters to vary by country in a way that helps determine how they are influenced by country specific factors section iii estimates the model for a panel of the 66 countries for which annual data on all series are available for the 1970 1989 period the paper s main conclusions are given in section iv ii methodology and data we assume that consumers in economy i at time t derive utility from effective consumption c sup which we define as 1 mathematical expression omitted where c is private consumption g sup m and g sup nm are the military and non military components of government consumption the parameters theta sup m and theta sup nm measure the degree of substitutability between c and g sup m and c and g sup nm respectively

private and government consumption with liquidity constraints abstract economic theory predicts that liquidity constraints and substitutability or complementarity between private and government consumption result in excess sensitivity of private consumption to income and government consumption respectively using annual data we estimate these excess sensitivity parameters for each of 54 countries and show that they not only have sensible values but are also correlated with several variables in ways consistent with economic theory our findings imply that the degree of substitutability between government services and private consumption depends negatively on the fraction of government spending that goes to national defense we also find that liquidity constraints typically exist and they are affected positively by output variability and negatively by the saving rate

global behaviour of a system with imperfect private public substitutability abstract empirical findings reveal that the relationship between private and public consumption generically differs from country to country it is substitutable for some while it is complementary for others the present paper incorporates this regularity into a simple growth model with public goods which affect utility and production the model casts off the standard assumption of socially constant returns to scale and as a result it generates many interesting dynamic features which do not arise with constant returns when the system displays increasing returns the dynamic path may diverge from an interior equilibrium in expanding oscillations suggesting that self fulfilling expectations could play an essential role with decreasing returns the interior equilibrium becomes a saddle point interestingly it turns out that the substitutability versus complementarity distinction does make a difference in affecting the stationary state and its transitional dynamics

evidence of public spending crowding out from a panel of oecd countries the empirical relationship between government spending and private investment is examined using a panel of 14 oecd countries the evidence suggests the existence of a significant crowding in effect of private investment by public investment through the positive impact of infrastructure on private investment productivity moreover government consumption appears to crowd out private investment the implications of these results are of foremost importance when it comes to fiscal consolidation deficit reductions engineered through cuts in public investment could severely impinge on private capital accumulation and growth prospects

business cycle fluctuations and excess sensitivity of private consumption we investigate whether business cycle fluctuations affect the degree of excess sensitivity of private consumption growth to disposable income growth using multivariate state space methods and quarterly us data for the period 1965 2000 we find that excess sensitivity is significantly higher during recessions

market consumption and hidden consumption a test for substitutability in this paper an empirical analysis is performed on the relationship between private consumption and underground economy for the italian case it is found that private market consumption and underground or hidden consumption may be defined as complementary goods an increase in underground consumption tends to increase family market consumption and increase its marginal utility an implication of this result is that the nonmarket sector does not offer hedging opportunities to the consumer worker as stressed by busato and chiarini s 2004 artificial economy moreover wealth effects associated with a change in underground consumption are negative a statistical model confirms this structural interpretation

fiscal policy and national saving this paper uses structural vector autoregressions along with structural measures of fiscal policy to measure the dynamic impact of fiscal policy shocks on the output gap and national saving positive shocks to government purchases and negative shocks to real net taxes are found to increase the output gap positive shocks to the government s structural surplus increases national saving although the effects are small positive shocks to government purchases are found to substantially reduce national saving negative shocks to real net tax revenues as a share of potential gdp have a small negative impact on national saving

government debt government spending and private sector behavior a current period tax reduction financed by issuing government debt shifts the timing of tax collection from the current period to the future if the future taxes implied by government debt are not fully perceived and discounted by the private sector there will be a net wealth effect that increases private sector consumption thus reducing capital accumulation and growth if on the other hand the implied future taxes are perceived and discounted by the private sector the current period tax reduction will be used to increase private saving to pay for the future taxes and government debt will be absorbed without any real effects on the economy the effects of government spending financed by current period taxation also depend upon private sector perceptions 2 if the benefits of government spending are ignored private sector consumption will decrease in accordance with the reduction in permanent disposable income to the extent that government spending is on consumption type goods that are perceived as substitutes for privately provided consumption goods there will be a relatively greater reduction in private sector consumption to the extent that government spending is on investment type goods yielding future goods and services that are perceived as substitutes for future privately provided consumption goods there will be a relatively smaller reduction in private sector consumption the standard approach to modeling private sector consumption saving behavior involves a rather asymmetric set of assumptions as to how the private sector perceives the various elements of government fiscal policy 3 current period taxes are assumed to be fully perceived but current period government spending is implicitly assumed to be completely ignored by the private sector in considering permanent personal disposable income the private sector is assumed to be forward looking in its assessment of income and taxation the stock of government debt is nevertheless included as part of the stock of private wealth the implicit assumption associate professor of economics graduate school of business university of chicago 1101 east 58th street chicago il 60637 i thank eugene fama levis kochin michael mussa paul evans and an anonymous referee for helpful comments i am particularly grateful to daniel benjamin for contributing many hours of discussion and laura lahaye who was a research assistant and valuable adviser on earlier drafts the theoretical debate on the burden of the debt has been long standing gerald o driscoll 1977 documents ricardo s nineteenth century position robert barro 1974 reopened the debate by introducing the fundamental issue of intergenerational transfers also discussed in merton miller and charles upton 1974 the empirical side of the debate was initiated by levis kochin s 1974 attempt to test for the effects of deficits on consumption and by martin feldstein s 1974 attempt to test for the effects of social security wealth on consumption other empirical contributions include jess yawitz and laurence meyer 1976 myself 1978 and j earnest tanner 1978 1979 with respect to the effects of government deficits and debt and barro 1978 michael darby 1979 and dean leimer and selig lesnoy 1982 with respect to social security wealth see also interesting recent papers by john seater 1982 who generates detailed tests of the effects of deficits and debt on consumption charles plosser 1982 who explores the effects of government spending and debt shocks on interest rates and feldstein 1982 who attempts tests similar to some in this paper see fn 29 2martin bailey s 1962 1971 development of the effects of government spending on private consumption and aggregate economic activity is the seminal contribution paul david and john scadding 1974 extend bailey s ideas and provide some supporting empirical evidence more recently willem buiter 1977 and myself 1978 developed models based on bailey s earlier work barro 1981 has an interesting paper on related issues see also david aschauer 1982 3the standard approach incorporates fiscal policy through the concept of personal disposable income and by including the stock of government debt as part of personal wealth see for example the empirical specification of albert ando and franco modigliani 1963 which has been the basis of most empirical consumption studies since and feldstein 1974 for one of the more influential papers based on the ando modigliani specification

two fiscal policy puzzles revisited new evidence and an explanation abstract this paper examines two fiscal policy puzzles related to the effects of government spending shocks contrary to theoretical predictions recent empirical evidence suggests a crowding in of consumption and a depreciation of the real exchange rate after a government spending increase while several studies have been made to reconcile the conflicting results this paper provides new time series evidence and proposes an alternative explanation using the japanese data the empirical responses of consumption and the real exchange rate after government spending shocks are shown to be well replicated by an estimated medium scale open economy dynamic stochastic general equilibrium dsge model augmented with i edgeworth complementarity between private and government consumption and ii productive public capital furthermore sensitivity analysis suggests that the combination of edgeworth complementarity home bias and incomplete asset market allows the model to account for an immediate increase in consumption and for a hump shaped depreciation of the real exchange rate after a government consumption shock this result is potentially important in preventing the model from showing the consumption real exchange rate anomaly after the shock

how effective is fiscal policy in raising national saving while fiscal adjustment is commonly viewed as the cornerstone of macroeconomic stabilization the effectiveness of alternative fiscal instruments in raising national saving is still poorly understood this paper enters the debate by estimating a private consumption function that allows for two types of agents finite horizons and liquidity constraints and nests three different consumption hypotheses using a large panel data set that includes both industrial and developing countries we reject full ricardian equivalence we also find substantial differences between industrial and developing countries regarding both the extent of ricardian offsetting and the degree to which the government budget constraint is internalized

government spending and private consumption some international evidence this paper investigates the relationship between private consumption and publicly provided goods and services for a number of countries the empirical results show that in the aggregate private and government consumption are best described as complementary in the sense that an increase in one raises the marginal utility of the other the strength of this relationship is shown to be negatively affected by the government size these findings are robust across all specifications tried copyright 1994 by ohio state university press

cross regime evidence of macroeconomic rationality rational expectations macromodels predict that the short run effects of monetary shocks on real output x should be negatively related across policy regimes to the variability of such shocks this paper presents cross regime tests of this and related propositions based on a sample of 47 countries the within regime estimates reveal a consistent pattern of positive short run real output effects with neutrality of money holding in the long run the cross regime tests show that x is negatively related to the variance of monetary shocks positively related to the variance of real output shocks negatively related to the variance of velocity shocks and unrelated to either the mean or variance of anticipated money growth

sensitivity of consumption to income and to government purchases some specification and estimation issues the paper derives a nonlinear error correction model ecm for consumption and shows that existing models that are based on quadratic utility combine permanent income and current income consumption and nest or could nest the hypothesis of substitutability between private consumption and government purchases are special cases of the ecm the importance of some econometric issues that have not received proper attention in the literature is demonstrated by estimating the models using us aggregate quarterly data 1953 1 1992 4 the evidence suggests that the ecm produces more reliable estimates than do the existing restrictive models

is the ricardian equivalence proposition an aerie fairy theory for europe using a theoretical model based on dynamic optimizing agents we test empirically the ricardian equivalence proposition rep for the eu 15 countries the theoretical setting allows us to obtain estimates of the structural parameters of the model and to test directly the hypothesis implied by the rep using recently developed end of sample cointegration breakdown tests we find evidence of a change in the fiscal behaviour of individuals during the last decade after the introduction of a fiscal rule namely the maastricht criteria for most countries in the sample the results concerning the direction of change are mixed

ricardian equivalence empirical evidence from developing economies abstract the strong underlying assumptions of the barro ricardo equivalence proposition rep raise doubts on its validity especially for developing countries this paper attempts to analyze the validity of the rep and the sources of deviation from rep for a large sample of developing countries although the results are of a mixed nature they suggest that the presence of liquidity constrained individuals may be the source of deviation from the rep the analysis also indicates that public spending is a poor substitute for private consumption and hence implies that temporary increases in public spending may have some expansionary effect on aggregate demand

effects of government spending on private investment this paper investigates the effects of military and non military public expenditures on gross private investment using cointegration and error correction analysis the latter type of public spending is disagreggated into expenditures of infrastructure consumption and other general government expenditures the empirical evidence from four emerging european countries namely greece ireland portugal and spain suggests that in some cases public capital spending stimulates investment while in others it depresses it also the results tentatively indicate that defence spending exerts no influence on private investment thus adding to the ongoing controversy of the economic effects of military spending

global dynamics in macroeconomics an overlapping generations example abstract in this paper we present some techniques used in the dynamical systems literature that let us characterize the stable and unstable manifolds of a given dynamical system as a result we can study how an economy behaves as it moves far away from the steady state in an environment where economic agents do not face uncertainty the underlying idea behind these methods is to compute the manifolds nonlocally by exploiting an invariance condition that analytically describes these manifolds in order to illustrate these techniques we present a general equilibrium model under two different policy regimes demonstrating that local and global dynamics of an economic system can be substantially different

fiscal policy in good times and bad in the 1980s several countries with large government debt or deficit implemented substantial and in some cases drastic deficit cuts contrary to widespread expectations in many cases private consumption boomed rather than contracted this paper shows that in times of fiscal stress shocks to government revenues and especially expenditure have very different effects on private consumption than in normal times

growth and public debt what are the relevant trade offs the interplay between growth and public debt is addressed considering a barro type 1 endogenous growth model where public spending is financed through taxes on income and public debt debt is assumed to be a fixed proportion of gdp which is used as a policy parameter by the government we first show that when debt is a large enough proportion of gdp two distinct bgps may co exist one being indeterminate therefore local and global indeterminacy may arise and self fulfilling expectations appear as a crucial ingredient to understand the impact of debt on growth and on macroeconomic fluctuations we then exhibit two types of important trade off associated with self fulfilling expectations first we show that the lowest bgp is always decreasing with respect to the ratio of debt gdp while the highest one is increasing as a result depending on the bgp selected by agents expectations the relationship between debt and growth is not always negative second we show that the highest bgp which provides the highest welfare is always locally indeterminate while the lowest is always locally determinate therefore depending on the expectations of agents when debt is increasing large fluctuations associated to self fulfilling believes may occur and be associated at the same time with welfare losses if there is a coordination on the low steady state finally a simple calibration exercise allows to provide an understanding of the recent experiences of many oecd countries

are consumers ricardian evidence for the united states this paper derives three empirical implications of a well specified model of consumer behavior a model that nests both ricardian equivalence and an alternative non ricardian theory ricardian equivalence is then tested against this alternative the tests reveal that ricardian equivalence cannot be rejected

the effects of public spending externalities abstract we conduct a positive analysis on the effects of externalities produced by government spending to this effect we estimate using u s data an rbc model with two salient features first we allow government consumption to directly affect the marginal utility of consumption second we allow public capital to shift the productivity of private factors we provide an identification analysis that supports the strategy adopted for estimating the parameters governing these two channels on one hand private and government consumption are robustly estimated to be substitute goods because of substitutability labor supply reacts little to a government consumption shock so the estimated output multiplier is much lower than in models with separabilities on the other hand our results point towards public investment being unproductive

intratemporal substitution between private and government consumption the case of japan abstract in this paper we use japanese quarterly data to examine the relationship between private and government consumption we apply a two step estimation procedure and find additional evidence that the two types of consumption may be complements or unrelated

government spending entry and the consumption crowding in puzzle this article documents empirically that net firm entry robustly rises after a u s government spending expansion we use this new finding to test the empirical validity of various model features that have been proposed to generate consumption crowding in after positive expenditure shocks endogenous entry models typically fail to generate the observed joint increase in consumption and entry model features that dampen the wealth effect such as rule of thumb households or complementarity between labor and consumption in preferences tend to reduce entry we show that utility or productivity enhancing public spending can reconcile the model with our documented fact and performs well empirically

public goods merit goods and the relation between private and government consumption in this paper we investigate the relation between public and private consumption by constructing a general government spending data set by function for 12 european countries in particular we split government consumption into two categories the 1rst category public goods includes defence public order and justice the second category merit goods includes health education and other services that could have been provided privately equations from a relatively general permanent income model are estimated by gmm the estimates are fairly robust in showing that public goods substitute while merit goods complement private consumption however the relation between merit goods and private goods turns out to be stronger than that between public goods and private goods thus in the aggregate government and private consumption are complements c