Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2006:2: A Panel Cointegration Analysis of the Relation between Private and Government Consumption

Åsa Eriksson ()
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Åsa Eriksson: 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 analyses the relation between private and government consumption in 23 OECD countries between 1970 and 2001. In particular it addresses the issue of whether government consumption is a substitute for or a complement to private consumption. The empirical analysis is made with panel cointegration analysis, using the newly developed CUSUM cointegration test by \cite{westerlund05}. The method is extended by using a bootstrap technique to control for cross-sectional dependence. The results show that government consumption is a complement to private consumption for most of the countries and a substitute for only a few of the countries.

Keywords: Private consumption; Government consumption; Panel cointegration

JEL-codes: C33; E21; E62

39 pages, December 21, 2005

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