Public Goods, Merit Goods, and the Relation Between Private and Government Consumption
Riccardo Fiorito () and
Tryphon Kollintzas ()
No 3617, CEPR Discussion Papers from C.E.P.R. Discussion Papers
In this Paper, we investigate the relation between public and private consumption, by constructing a general government spending dataset, by function, for twelve European Union countries. In particular, we split government consumption into two categories. The first category includes defence, public order, and justice ('public goods'). The second category includes health, education, and other services that could have been provided privately ('merit goods'). Equations from a relatively general theoretical model of household behaviour are estimated by GMM. The estimates are fairly robust in showing that public goods substitute, while merit goods complement, private consumption, and that the relation between merit goods and private goods is stronger than that between public goods and private goods. So that, in the aggregate, government and private consumption are complements. It also suggests that the potential calibration/estimation bias by ignoring the composition of government consumption might be substantial.
Keywords: dynamic panel estimation; government consumption; merit goods; public goods (search for similar items in EconPapers)
JEL-codes: C33 E60 H30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mic
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Journal Article: Public goods, merit goods, and the relation between private and government consumption (2004)
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