Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2003:20: Fiscal Policy and Private Consumption in Industrial and Developing Countries

Alfredo Schclarek
Additional contact information
Alfredo Schclarek: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This paper empirically studies the effects of fiscal policy shocks on private consumption. Further, it tries to determine if the initial conditions of the economy, such as the financing needs of the government or previous fiscal deficits, affect that relationship. We use yearly data between 1970 and 2000 for forty countries, of which 19 are industrialized and 21 are developing countries. In general, the estimation results seem to indicate that government consumption shocks have Keynesian effects for both industrial and developing countries. In the case of tax shocks, the evidence is mixed. Furthermore, there is no evidence that favor the hypothesis of expansionary fiscal consolidations.

Keywords: Fiscal policy; Private consumption; Government expenditure; Taxation; Developing countries

JEL-codes: C33; E21; E62

31 pages, First version: December 3, 2003. Revised: September 30, 2005.

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