Consumption Multipliers of Different Types of Public Spending: a Structural Vector Error Correction Analysis for the UK

Luigi Marattin and Simone Salotti

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: The aim of this paper is to investigate the relationship between government spending and private consumption in the UK, for which there is scarce previous empirical evidence. We disaggregate public expenditure into three categories and search for the corresponding private consumption multipliers. Our analysis includes the estimation of a structural vector error correction (SVEC) model, using quarterly non-interpolated data for the period 1981:1 2007:4. Initially, we estimate negative effects on consumption of shocks to total public spending. Then, using the spending decomposition, we find that while shocks to public wages crowd-out private consumption as predicted by neoclassical models, shocks to the non-systematic component of social spending and government purchases of goods and services generate a positive reaction, so to crowd-in private consumption. Thus, the qualitative and quantitative dimensions of fiscal multipliers on private consumption change across different public spending categories. Our findings suggest that any empirical support of competing theoretical models on the issue would benefit from a disaggregation of government expenditure, rather than focusing on the aggregate measure

JEL-codes: E62 H30 (search for similar items in EconPapers)
Date: 2010-11
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Journal Article: Consumption multipliers of different types of public spending: a structural vector error correction analysis for the UK (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp719

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