On the Substitutability between Private Consumer Expenditure and Government Spending in Canada

Odysseus Katsaitis

Canadian Journal of Economics, 1987, vol. 20, issue 3, 533-43

Abstract: The purpose of this paper is twofold. First, to examine whether there is any substitutability between private consumer expendit ure and government spending in Canada. Second, to test the Ricardian equivalence principle. Both hypotheses are nested within the life-cyc le/rational-expectations model. The results indicate that the joint h ypothesis of rational expectations and Ricardian equivalence can not be rejected by the data. Moreover, they suggest that government spend ing substitutes poorly for private consumer expenditure. These result s imply that temporary increases in government spending will result i n an expansion of real output.

Date: 1987
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