Public Consumption Over the Business Cycle

Ruediger Bachmann
Authors registered in the RePEc Author Service: Jinhui H. Bai

No 701, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: This paper characterizes quantitatively the business cycle dynamics of public consumption in a neoclassical representative household model with endogenous and time-consistent public policy. We show that a simple frictionless version of such a model with productivity as the only aggregate driving force fails to match important features of the business cycle dynamics of U.S. public consumption. It is not persistent enough and too synchronized with the cycle. We add implementation lags and costs in the budgeting process as frictions plus taste shocks for public consumption relative to private consumption, and achieve a substantially better match to the data. All these ingredients are necessary to improve the fit.

Date: 2011
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Journal Article: Public consumption over the business cycle (2013)
Working Paper: Public Consumption Over the Business Cycle (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:701

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