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The Effect of Public Consumption on Private Consumption: Macro Evidence from Micro Data

Ercolani, V; Pavoni, N; (2008) The Effect of Public Consumption on Private Consumption: Macro Evidence from Micro Data. UNSPECIFIED

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Abstract

We estimate the effect of different government consumption shocks on private consumption. First, we build a unique panel dataset which links household's private consumption to the government consumption of the region where the household lives, for Italy. Then, we use regional variability of government consumption and measure its direct effect on individual consumption for different categories of government expenditures. We find that individual's consumption expenditure increases as government consumption increase in the region. This positive relation is driven by publicly provided private goods (e.g. education, health). Healthcare government consumption has the strongest impact on households' consumption. The results can be interpreted in the light of complementarity between goods. Finally, we use our estimates from micro data to calibrate an otherwise standard RBC model. We find that government consumption shocks are able to generate a positive response for private consumption, even considering wealth and general equilibrium effects in a dynamic framework with fully fl exible prices.

Type: Other
Title: The Effect of Public Consumption on Private Consumption: Macro Evidence from Micro Data
Keywords: Consumption, Government Purchases, Individual Data Estimation
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/178541
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