Government Expenditure under Rational Expectations: Some Estimates for the U.K., Canada, Germany, and the U.S

Ronald MacDonald and A E H Speight

Public Finance = Finances publiques, 1989, vol. 44, issue 3, 419-36

Abstract: Cointegration methodology is utilized in specifying a bivariate autoregressive system applying the rational expectations-permanent income hypothesis to government consumption expenditure in Canada, the United Kingdom, Germany, and the United States. Excepting Canada, the authors find cointegration in government consumption and (neo-Ricardian) income, and the bivariate autoregressive system performing well. The rational expectations-permanent income hypothesis/bivariate autoregressive implication that the difference between government consumption and income should "Granger-cause" income is upheld on German data, as is the rational expectations-permanent income hypothesis implication that government consumption revision should be unpredictable from past information, once transitory consumption is allowed for. Mixed results are obtained on U.S. data.

Date: 1989
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:44:y:1989:i:3:p:419-36

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