PUBLIC CONSUMPTION AND GOVERNMENT EXPENDITURE IN 6 OECD COUNTRIES and THEIR EFFECT IN MACROECONOMETRIC MODELS OF DISEQUILIBRIUM, 1970-2016

Maria-Carmen Guisan

Applied Econometrics and International Development, 2018, vol. 18, issue 1, 153-164

Abstract: There are some controversies about the Wagner´s Law and the effects of Government expenditure on economic development, and we analyze those controversies from the approach of Macroeconometric models of disequilibrium that have into account not only demand and supply of primary inputs but also the important approach of supply of intermediate inputs. We present data analyzing the evolution of private and public consumption, investment, general government expenditure and private and public debt in 6 OECD countries (France, Germany, Italy, Spain, UK and USA) for the period 1970-2016. We find that public consumption and general government expenditure per capita increase with economic development and their evolution is compatible with increases of consumption and investment of the private sector if the relationships of demand and supply are considered. For developed countries we advise to avoid excessive austerity policies, as those imposed by the European Union for the period 2008-2018 in several countries, because they damage both public and private development. For developing countries we advise to focus on the main factor of economic development (human capital, industry and investment) because they are usually the keys to allow them to increase low levels of government expenditure per capita and their low levels of consumption per capita.

Keywords: Public Consumption; General Government Expenditure; OECD countries; Macroeconometric model of disequilibrium; Demand; Supply of Primary Inputs; Supply of Intermediate Inputs. (search for similar items in EconPapers)
Date: 2018
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