Effects of Deficit Finance on Consumption: A Study of Central and Eastern European Countries

Anton Gerunov

Ikonomiceski i Sotsialni Alternativi, 2015, issue 4, 21-33

Abstract: The effect of deficit finance on consumption is a key issue for fiscal policy. We test empirically the influence of deficit and sovereign debt on house­hold consumption in the Central and Eastern Euro­pean countries over the period 1995-2014. Under numerous alternative model specifications we find a small negative effect on consumption exerted by the mounting debt. Households react in accor­dance with the Barro-Ricardo hypothesis by com­pensating increased public debt with a decrease in consumption expenditure. This leads to diminished effectiveness of debt-financed fiscal policy as sov­ereign debt increases

Keywords: public finance; deficit; deficit finance; sovereign debt (search for similar items in EconPapers)
JEL-codes: H31 H62 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:nwe:iisabg:y:2015:i:4:p:21-33

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