The link between government spending, consumer confidence and consumption expenditures in emerging market countries

Yasemin Özerkek,Sadullah Çelik

doi:10.2298/pan1004471o

Abstract

The impact of government spending on private consumption is extensively studied in the literature. However, the main theme of these studies is the possible crowding-in or crowding-out impact of government spending on consumer spending. This paper attempts to introduce a new variable to this well-known literature by investigating the existence of a relationship between government expenditure, consumer spending and consumer confidence for a group of emerging market countries. We examine whether a change in consumer confidence causes any change in government spending. Moreover, we analyze whether there is a feedback from government spending and private consumption to consumer confidence. Our empirical findings demonstrate the important role of consumer confidence on government spending and private consumption expenditures.

Highlights

Considering the importance of consumer confidence, this paper attempts to incorporate this variable into the link between government spending and private consumption by investigating the existence of a relationship between government expenditure, consumer spending and consumer confidence for a group of emerging market countries
We examine whether a change in consumer confidence gives rise to a change in government spending
We first ask whether the consumer confidence index (CCI) can be used as a proxy for private consumption (PC) in the relationship between government spending (GS) and private consumption

Summary

Sadullah Çelik

The Link between Government Spending, Consumer Confidence and Consumption Expenditures in Emerging Market Countries. Our empirical findings demonstrate the important role of consumer confidence on government spending and private consumption expenditures. The effects of changes in government spending on aggregate economic activity and the transmission of these effects into household behavior are important in conducting macroeconomic policy. In this context, several studies have linked the private consumption expenditures to government spending and have searched for this relationship’s direction and magnitude. These issues have been studied extensively, there is still no widespread agreement on policy making from either a theoretical or an empirical point of view They examine whether consumer sentiment causes fluctuations in GNP and find evidence consumer confidence is an important independent factor in economic fluctuations for the US economy for the period 1953-1988

Yasemin Özerkek and Sadullah Çelik

Literature Survey

Methodology and Empirical Findings

Individual unit root

Findings

Constant Constant and Trend