Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

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 ()
Additional contact information
Martin Johansson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Kristian Jönsson: Sveriges Riksbank, Postal: Macroprudential Division, Financial Stability Department, Sveriges Riksbank, SE-103 37 Stockholm, Sweden,

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

JEL-codes: E12; E21; E62

18 pages, April 3, 2003

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