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Estimating the substitutability between private and public consumption: the case of Spain, 1960-2003

Vicente Esteve () and Juan Sanchis-Llopis
Authors registered in the RePEc Author Service: Juan A. Sanchis Llopis ()

Applied Economics, 2005, vol. 37, issue 20, 2327-2334

Abstract: This paper examines the relationship between private and public consumption using Spanish data over the period 1960-2003, using a two-good permanent-income model. We extend previous analysis addressing the question of whether this relationship is stable over time, or exhibits a structural break allowing the instability to occur at an unknown point in time. Our empirical results indicated the existence of a long-run relationship between private and public consumption. We also detect a structural change of regime shift in the cointegration regression around the time of 1973-74. Finally, the estimated intratemporal and intertemporal elasticities of substitution between the two types of expenditure suggest that private and public consumption in Spain are Edgeworth-Pareto substitutes.

Date: 2005
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