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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2003:3:
Public debt and the effects of government expenditure on private consumption - A Kalman filter analysis of the Swedish experience 1970-1997

Martin Johansson and Kristian Jönsson ()

Abstract: Recently, it has been suggested that the effect of government expenditure on private consumption is dependent on the level of public debt. More specifically, a higher public debt implies a less Keynesian response in private consumption. In this paper we investigate if this theory is supported by Swedish data 1970-1997 by estimating a consumption function allowing for time-varying parameters. Our main finding is that the effect of government expenditure has become less Keynesian over time. This coincides with a large increase in public debt, lending support to the theoretical predictions.

Keywords: Government expenditure; private consumption; time-varying parameters; (follow links to similar papers)

JEL-Codes: E12; E21; E62; (follow links to similar papers)

18 pages, April 3, 2003

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