Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2004:26: Effective Consumption and Non-Keynesian Effects of Fiscal Policy

Kristian Jönsson ()
Additional contact information
Kristian Jönsson: Sveriges Riksbank, Postal: Macroprudential Division, Financial Stability Department, Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: In this paper, we elaborate on the notion of effective consumption and its role in determining the outcome of fiscal changes. More specifically, we investigate whether government consumption, by acting either as a complement or a substitute to private consumption, can help explain the non-Keynesian effects of fiscal policy that have been previously documented. We let the periods, where government consumption has acted as a complement or a substitute to private consumption, constitute different regimes. By using econometric methodologies that allow the these regimes to be determined both exogenously and endogenously, we find that the notion of effective consumption can assist in understanding the non-Keynesian effects of fiscal policy that have been documented in Denmark, Ireland and Sweden.

Keywords: Private Consumption; Fiscal Policy; Government Consumption

JEL-codes: E21; E62

30 pages, November 25, 2004

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