Understanding the Effects of Government Spending on Consumption

Jordi Galí, David Lopez-Salido and Javier Valles

Journal of the European Economic Association, 2007, vol. 5, issue 1, 227-270

Abstract: Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be asily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending. (JEL: E32, E62) (c) 2007 by the European Economic Association.

Date: 2007
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Related works:
Working Paper: Understanding the Effects of Government Spending on Consumption (2015)
Working Paper: Understanding the Effects of Government Spending on Consumption (2005)
Working Paper: Understanding the Effects of Government Spending on Consumption (2005)
Working Paper: Understanding the effects of government spending on consumption (2004)
Working Paper: Understanding the effects of government spending on consumption (2004)
Journal Article: Understanding the effects of government spending on consumption (2003)
Working Paper: Understanding the effects of government spending on consumption (2003)
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