EXPANSIONARY FISCAL CONTRACTION: GOVERNMENT SPENDING FINANCED BY MONEY SEIGNIORAGE

2007 ◽  
Vol 52 (02) ◽  
pp. 179-189
Author(s):  
KIM-HENG TAN
Keyword(s):  
Government Spending ◽  
Private Consumption ◽  
Public And Private ◽  
Inflation Rates

This paper determines the conditions required for fiscal contractions to be expansionary when government spending is financed by money seigniorage. It shows that the expansionary effects of permanent fiscal contractions are dependent on the initial rates of inflation prevailing in the economy and that the set of initial inflation rates under which fiscal contractions are expansionary is affected by the degree of substitutability between public and private consumption. Starting from the benchmark case where public and private consumption are independent, introducing complementarity between public and private consumption gives rise to a weaker set of conditions for fiscal contractions to be expansionary. This implies that economies that print money to finance government spending complementary with private consumption are more likely to experience expansions if they pursue fiscal contractions.

EXPANSIONARY FISCAL CONTRACTION: GOVERNMENT SPENDING FINANCED BY LUMP-SUM TAXES

2004 ◽  
Vol 49 (02) ◽  
pp. 225-232 ◽  
Author(s):  
KIM-HENG TAN
Keyword(s):  
Labor Supply ◽  
Government Spending ◽  
Private Consumption ◽  
Infinite Horizon ◽  
Wealth Effect ◽  
Public And Private ◽  
Lump Sum ◽  
Intertemporal Allocation

Barry and Devereux (2003) have identified two conditions for permanent fiscal contractions to be expansionary. The first condition is that households do not face an effective infinite horizon. The second is that the wealth effect of reduced tax liabilities on labor supply must be small if labor supply is endogenous. However, Barry and Devereux have not allowed for the possibility that government spending may affect the intertemporal allocation of private consumption. By allowing for the possibility, this paper identifies a third condition for permanent fiscal contractions to be expansionary, namely that public and private consumption must not be too highly substitutable.

scholarly journals Evaluating Changes in the Transmission Mechanism of Government Spending Shocks

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Nooman Rebei
Keyword(s):  
Government Spending ◽  
Private Consumption ◽  
Public Spending ◽  
Transmission Mechanism ◽  
Elasticity Of Substitution ◽  
Public And Private ◽  
Elasticity Of Intertemporal Substitution ◽  
Public Consumption ◽  
Private And Public ◽  
Rolling Windows

AbstractWe empirically revisit the crowding-in effect of government spending on private consumption based on rolling windows of U.S. data. Results show that in earlier samples government spending is increasingly crowding in private consumption; however, this relation is reverted in the latest periods. We propose a model embedding non-separable public and private consumption in the utility function and rule-of-thumb consumers to assess the sources of non-monotonic changes in the transmission of the shock. The iterative full information estimation of the model reveals that changes in the co-movement between private and public spending is primarily driven by the fluctuations in the elasticity of substitution between private and public consumption, the share of financially constrained consumers, and the elasticity of intertemporal substitution.

scholarly journals Economic Growth, Public and Private Consumption in Cameroon: A Multivariate Analysis

2018 ◽  
Vol 11 (1) ◽  
pp. 26
Author(s):  
Honoré Samuel NTAVOUA
Keyword(s):  
Economic Growth ◽  
Multivariate Analysis ◽  
Empirical Research ◽  
Private Consumption ◽  
Causal Link ◽  
Vector Model ◽  
Public And Private ◽  
Public Consumption ◽  
The Relationship

<p>The nature of the link between economic growth, public and private consumption in theoretical and empirical research is not well known in Cameroon. The objective of this study is to examine the nature of the relationship between economic growth, public and private consumption in Cameroon from 1980 to 2015. In order to achieve our goal, the data from the CENUCED were collected and tested in the autoregressive vector model (VAR). The delay selection statistic for VAR allowed us to have the following causality results: in Cameroon, there is a unidirectional relationship between economic growth towards public consumption and economic growth towards private consumption. Meanwhile, there is no causal link between public and private consumption, from public and private consumption to economic growth. Thus, the recommendation is that the Cameroonian government should create an incentive framework conducive to the improvement of public and private consumption to stimulate investment and economic growth.</p>

scholarly journals Corruption, fiscal policy, and growth: a unified approach

2017 ◽  
Vol 17 (2) ◽  
Author(s):  
Sugata Ghosh ◽  
Kyriakos C. Neanidis
Keyword(s):  
Fiscal Policy ◽  
Government Spending ◽  
Income Tax ◽  
Government Expenditure ◽  
Tax Revenue ◽  
Unified Approach ◽  
Unified Framework ◽  
Bureaucratic Corruption ◽  
Inflation Rates ◽  
The Impact

AbstractWe study the effects of bureaucratic corruption on fiscal policy and economic growth, where corruption (i) reduces the tax revenue raised from households, (ii) inflates the volume of government spending, and (iii) reduces the productivity of “effective” government expenditure. We distinguish between the policies pursued by (a) a non-optimizing, and (b) an optimizing government. For both cases, corruption leads to higher income tax and inflation rates and a lower level of government spending, thus hindering growth. In the circumstances, an activist government could allocate its resources in attempting to reduce the type of corruption that harms growth the most. Finally, the findings from our unified framework could rationalize the sometimes conflicting empirical evidence on the impact of corruption on growth in the literature.

PUBLIC DEBT IN A POLITICAL ECONOMY

2016 ◽  
Vol 20 (5) ◽  
pp. 1282-1312 ◽  
Author(s):  
Sigrid Röhrs
Keyword(s):  
Political Economy ◽  
Public Debt ◽  
Economic Model ◽  
Private Consumption ◽  
Overlapping Generations ◽  
Elasticity Of Substitution ◽  
Future Generations ◽  
Public And Private ◽  
Optimal Policies

This paper analyzes the determination of public debt in a dynamic politico-economic model with overlapping generations. Sizeable levels of public debt can be rationalized in this model. The elasticity of substitution between public and private consumption determines the size of public debt and could explain differences of debt across countries. I compare the optimal policies under commitment and in a “political equilibrium” without commitment. Public debt can be higher or lower when commitment is absent, depending on the elasticity of substitution between public and private consumption. Consequently, under certain conditions, the no-commitment debt level can be closer to a normative benchmark with higher weight for future generations.

The assessment of budget expenditures impact on economic activity

2018 ◽  
pp. 28-45
Author(s):  
I. V. Belyakov
Keyword(s):  
Government Spending ◽  
Economic Activity ◽  
Private Consumption ◽  
Negative Impact ◽  
Positive Impact ◽  
Private Investment ◽  
Short Term ◽  
Government Investment ◽  
Macroeconomic Conditions ◽  
The Impact

The article explores the impact of government spending on the key components of economic activity in Russia, such as private consumption and investment. The author pays serious attention to the theoretical justifications of the possible impact of fiscal policy on economic growth and its components, as well as reviews the empirical results obtained in this area. In the empirical part of the article, government expenditures are represented by the “GDP by expenditure” items — government consumption and government investment. The results, for Russian data covering the period of 1995—2017, indicate a short-term positive impact of government spending on private consumption and a negative impact on private investment. It also proves important to take into consideration the changes in macroeconomic conditions that occurred approximately in the middle of the observed period.

Welfare Maximization: Samuelson's Analysis with Public and Private Goods

1973 ◽  
Vol 1 (4) ◽  
pp. 426-436
Author(s):  
George M. Von Furstenberg
Keyword(s):  
Public Goods ◽  
Pareto Optimality ◽  
Private Consumption ◽  
Consumer Welfare ◽  
The Other ◽  
Public And Private ◽  
Private Goods ◽  
Welfare Maximization ◽  
Pareto Efficient ◽  
Geometric Techniques

Samuelson (1955) and Bator (1957) have provided geometric techniques for deriving or illustrating the conditions for Pareto-optimality in exchange and production. Bator's approach merely serves to illustrate what the distribution of private consumption and of consumer welfare must be if it is to make any arbitrarily chosen output combination Pareto-efficient. Samuelson. on the other hand, derives the Pareto-efficient output configuration, given a constraint on the welfare of one of two individuals. Even though Samuelson's approach makes the better use of the geometry, Bator's demonstration was the first to be extended from private to public goods (by McLure, 1968). The reverse extension of Samuelson's model, from public to private goods, is attempted in this note.

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