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Nonlinear Effects of Government Debt on Private Consumption in OECD Countries

Dooyeon Cho and Dong-Eun Rhee

No 13-5, Working Papers from Korea Institute for International Economic Policy

Abstract: This paper investigates nonlinear effects of government debt on private consumption in 16 OECD countries. The estimated consumption function shows smooth regime switching depending on the debt-to-GDP ratio, and the threshold level of regime switching is found to be the ratio of 83.7 percent. The results reveal that a higher level of government debt crowds out private consumption to a greater extent, and that the degree of the crowding out effect has deteriorated since the global financial crisis.

Keywords: Consumption; Government Debt; Nonlinearity; Panel Smooth Transition Regression Model (search for similar items in EconPapers)
JEL-codes: C23 E21 E62 H63 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2013-12-05
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