Government spending, taxation of interest, and private saving: An empirical analysis using Greek aggregate data

Abstract

Following Campbell and Mankiw (1989), I derive an approximate consumption function by log-linearizing the budget constraint and the first-order condition for intertemporal utility maximization of a representative consumer. Using annual aggregate data from Greece, 1960–1990, I find some evidence that an increase in government spending that is viewed as temporary and an increase in taxation of interest that is viewed as permanent may have considerable negative effects on current private saving.