Effects of Fiscal Policy on Private Consumption

Mika Arola

No 133, Discussion Papers from VATT Institute for Economic Research

Abstract: This paper examines the effects of fiscal policy on private consumption. The paper evaluates the assumption that the effects of fiscal policy are dependent on the public sector's financial situation, which changes the private sector's income expectations. For this purpose regression equations are run with international data. From the international evidence it is found that every component of fiscal policy, public consumption, taxes, and transfers, may have regime-specific effects related to the financial balance in the public sector. Regressions of Finnish data show that private sector's income expectations may have played an important role in the private consumption changes of the early 199Os. In light of the international estimations, it is also found that changes in the unemployment rate may have regime-specific effects on consumption.

Keywords: Fiscal policy, private consumption, non-Keynesian effects, budget deficits, public debt, fiscal crisis, Macroeconomic policy, Talouspolitiikka, International comparisons, Kansainväliset vertailut, Taxation and Social Transfers, Julkisen talouden rahoitus ja tulonsiirrot, E210 - Macroeconomics: Consumption; Saving, E620 - Macroeconomic Aspects of Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation, F000 - International Economics: General, H300 - Fiscal Policies and Behavior of Economic Agents: General, (search for similar items in EconPapers)
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:fer:dpaper:133

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