The Asymmetric Effects of Fiscal Policy on Private Consumption over the Business Cycle

Athanasios Tagkalakis ()

No ECO2004/19, Economics Working Papers from European University Institute

Abstract: This paper explores on a yearly panel of nineteen OECD countries from 1970-2001 the effects of fiscal policy on private consumption in recessions and expansions. In the presence of binding liquidity constraints on households, fiscal policy is more e¤ective in boosting private consumption in recessions than in expansions. The effect is more pronounced in countries characterized by a less developed consumer credit market. This happens because the fraction of individuals that face binding liquidity constraints in a recession will consume the extra income generated following a tax cut or government spending increase.

Keywords: Fiscal policy; Liquidity constraints; Consumption; Recessions (search for similar items in EconPapers)
JEL-codes: E62 E21 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2004
View list of references

Downloads: (external link)
http://www.iue.it/PUB/ECO2004-19.pdf main text

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eui:euiwps:eco2004/19

Access Statistics for this paper

More papers in Economics Working Papers from European University Institute
Address: Badia Fiesolana, Via dei Roccettini, 9, 50016 San Domenico di Fiesole (FI) Italy
Contact information at EDIRC.
Series data maintained by Marcia Gastaldo ().