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Understanding the Effects of Government Spending on Consumption

Jordi Galí, David Lopez-Salido () and Javier Valles

No 73, Working Papers from Barcelona Graduate School of Economics

Abstract: Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) 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.

Keywords: Rule-of-thumb consumers; fiscal multiplier; government spending; Taylor rules (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2003-09
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https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/73.pdf (application/pdf)

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