Private Consumption Expenditure Research Articles

Fiscal Policy and Private Consumption: Instrumental Variables Tests of the "Consolidated Approach"

SINCE BARRO s (1974) RESTATEMENT of the debt proposition, economists have directed considerable research toward determining whether fiscal policy can affect aggregate demand. Most of the debate, both theoretical and empirical, has focused on the net wealth content of privately held government debt. Although existing research has hardly provided a definitive resolution to this debate (see, for example, Blinder and Deaton 1985, Bernheim 1987, Barro 1989), recent efforts (Feldstein 1982, Kormendi 1983, Aschauer 1985, Leiderman and Razin 1988) have followed Bailey (1971) and broadened the scope of the investigation to include the possibility that government expenditures substitute for private consumption expenditures. In doing so, Feldstein, Kormendi, and Aschauer have shown that fiscal neutrality implies certain restrictions on private consumption behavior. The first of these restrictions is what Feldstein (1982) calls ex ante crowding-out. For complete ex ante crowding-out, government spending on goods and services must substitute dollar-for-dollar for private spending. Consequently, an increase in government expenditures on consumption goods should lead to an equivalent decrease in private consumption expenditures. A second restriction is that government finance decisions should not affect private consumption. Barro (1974) has derived conditions under which this result will obtain. Essentially, maximizing consumers are assumed to be rational and forward-looking, accurately foreseeing future taxes implied by

An empirical examination of government expenditures and the ex-ante crowding-out effect for the British economy

The conventional macroeconomic view that consumers make their consumption decisions without regard for goods provided by the government has been examined in the literature. Moreover, the line of research that questions this conventional view argues that this separation does not have a firm theoretical backing. If consumers take government expenditures into account when maximizing their utility functions then the effects of fiscal policy actions will tend to appear weaker than those suggested by most conventional analyses. The examination of this issue should therefore have far-reaching political as well as economic implications within the context of traditional fiscal policies. This paper will empirically examine the ex antecrowding-out effect of government expenditures upon private consumption expenditures for the British economy. An aggregate consumption function is derived and estimated in the context of a simultaneous equations model based on intertemporal consumption theory. The empirical results sho...

Government expenditures and the ex ante crowding–out effect:an examination

This paper empirically examines the ex ante crowding–out effect of government expenditures upon private consumption expenditures. Intertemporal consumption theory is used to construct a consumption function which includes the ex ante crowding-out effect. The aggregate consumption function is then derived and estimated in the context of a simultaneous equations model. The empirical results indicate that government expenditures are an explanatory variable of private consumption expenditures. Two estimates of the ex ante, crowding-out effect were generated, 9.4 and 20.4 cents. The 9.4 cent estimate is associated with each dollar of a balanced budget increase in government expenditures crowding-out a dollar of desired consumption expenditures and the 20.4 cent estimate is associated with more than a dollar's worth of crowding out for a balanced budget increase.

Income distribution, economic structure and employment in South Africa

This paper discusses the impact of a redistribution of current income from the White to the Black population on the distribution of sectoral output, and total employment by means of a semi‐closed input‐output model. The results show that a redistribution of current income towards Black households — which no doubt will have positive social and political repercussions — has a non‐negative effect on GDP and a definite positive effect on the performance of sectors with a high private consumption expenditure component, as well as on total employment.

Preisniveauschwankungen und privater Konsum: Zur empirischen Bedeutung des Pigou-Effekts in der Bundesrepublik Deutschland

Price Level Changes and Private Consumption: The Empirical Relevance of the Pigou-Effect in West-Germany. - In West-Germany price level fluctuations significantly influence real private consumption expenditures, in the manner suggested by Pigou in his famous attack on Keynes’ theory of employment. This is demonstrated by estimating three different groups of consumption models using one-stage least square techniques. The empirical relationship between price level changes and real consumption, however, is open to various theoretical interpretations: Besides the Pigou-effect proper a neo-classical cash balance effect, a price-illusion effect or a so-called negative-income effect may have been at work as well. Changements en niveau de prix et consommation privee: L’importance empirique de l’effet de Pigou en Allemagne de l’Ouest. — Les fluctuations en niveau de prix influencent significativement les depenses reelles de consommation privee en RFA comme Pigou a presente cette relation dans son attaque fameuse contre la theorie de l’emploi de Keynes. Pour l’analyse, trois groupes differents de modeles de consommation sont estimes utilisant des techniques des moindres carres a un degre. La relation empirique entre les changements en niveau de prix et la consommation reelle implique, cependant, plusieurs interpretations theoriques: Sans parler de l’effet de Pigou propre un effet neo-classique de l’encaisse, un effet d’illusion de prix ou un effet soi-disant de revenu negatif peuvent Etre aussi effectifs. Cambios en el nivel de precios y consumo privado: La relevancia empirica del efecto Pigou en Alemania Occidental. - Fluctuaciones en el nivel de precios afectan significativamente el gasto privado para fines de consumo de la manera sugerida por Pigou en su famoso ataque a la teoria del empleo de Keynes. Esto queda demonstrado estimando tres grupos diferentes de modelos de consumo utilizando el metodo de cuadrados minimos de una etapa. La relacion empirica entre cambios en el nivel de precios y el consumo real, empero, se presta a varias interpretaciones teoricas: ademas del efecto Pigou, tambien otros efectos podrian haben estado actuando, como el de dinero efectivo neoclasico, el efecto de ilusion de precios o el asi llamado efecto de ingreso negativo.

Migrants' remittances and economic activity

The impact of migrant workers' remittances on economic activity in their home countries was long overshadowed by the manifestly positive balance of payments effect. Only gradually did it come to be recognized that it was not just the scale of remittances but also the way in which they are used that is of crucial significance for the economies of the migrants' home countries. This article estimates the contribution that such remittances made to GDP, private consumption expenditure, saving and imports in Portugal, Spain, Italy, Greece and Turkey in the period from 1960 to 1981.

A note on the measurement, quantification, and use of consumer confidence

It is argued that consumer spending on durable items is not necessarily the only type of consumer spending to be influenced by consumer confidence but. given a certain degree of affluence. spending on non-durables can also be influenced by it. Different methods of quantification of consumer confidence are touched upon and the issue of equal weighting versus differential weighting, where weights are ascertained by the use of factor analysis, is discussed in more detail. Various indices of consumer confidence are computed and tested by means of regression analyses. It was found that it is immaterial whether a composite measure of confidence is based on factor analysis or simply on the summing and averaging of responses. The results of the regression analyses suggest that the hypothesis that consumer sentiment partly determines movements in private consumption expenditure holds true, especially in the case of durables. There are indications, however, that spending on non-durable goods might also be influenced by consumer sentiment.

The Role of Attitudes in Consumer Spending

SUMMARYThis paper comments very briefly on the central theme of work done on consumer sentiment and consumer expenditure. It is argued that consumer spending on durable items is not necessarily the only type of consumer spending to be influenced by consumer confidence but, given a certain degree of affluence, spending on non-durables can also be influenced by it. The paper then continues to investigate the use of sentiment data in the explaining of private consumption expenditure in South Africa.Quantification of consumer confidence is an extremely difficult exercise and this is emphasized in this paper. Different methods of quantification is touched upon and the issue of equal weighting versus differential weighting, where weights are ascertained by the use of factor analysis, is discussed in more detail. Various indices of consumer confidence are computed and tested by means of regression analyses.As is the case with economic magnitudes in general, attitudes are highly interrelated and this makes it difficult to assess their contribution to the explanation of changes in spending. The methods applied in the paper do suggest, however, that consumer sentiment measures are useful in this regard. This is true for measures derived from single questions as well as for those based on responses to more than one question. It was found that it is immaterial whether a composite measure of confidence is based on factor analysis or simply on the summing and averaging of responses.The results of regression analyses as discussed in the paper, as well as correlation analyses, suggest that the hypothesis that consumer sentiment partly determines movements in private consumption expenditure holds true, expecially in the case of durables. There are strong indications, however, that even spending on non-durable goods are influenced by consumer sentiment. A particularly important finding is that the sentiment measures perform best in lagged form which improves their use in short-term forecasting.

Methodology and application of price analysis

This paper deals with the relationship between the development of unit costs and prices of production factors and the development of the prices of final products. The investigation of these relationships during the various stages of production in the economic process, an activity called price analysis, may contribute to the analysis of inflation. In this respect the influence of the wage rate on the development of the prices of final expenditure is more considerable than the influence of the prices of imports of goods and services. However, taking into account the modifications in the structure of production, particularly regarding labour productivity and import substitution, the main explanation of the price increase in 1976 compared with 1970 of three categories of final expenditure,viz. exports of goods and services, private consumption expenditure and gross fixed capital formation of enterprises is to be found in the unit costs of imports of goods and services rather than in the unit labour costs.

Redistribution, demand structure and factor requirements: The case of India

This paper investigates the hypothesis that a redistribution of private consumption expenditure from rich to poor, or from urban residents to rural residents, would bring about an increase in employment and reduce capital and import requirements, through its impact on the structure of aggregate demand. The simulations reported here, using Indian data, do not provide much support for the ‘redistribution promotes employment’ argument. The analysis suggests that even ‘radical’ redistributions of private consumption expenditure would have no significant impact on the level of employment, either directly through increasing labour requirements or indirectly through reducing scarce resource requirements.

An empirical investigation of monetary effects on private consumption expenditures in Austria

This paper presents an econometric investigation of monetary effects on private consumption expenditures in Austria. It tries to add the empirical aspect to the theoretical problem of the relationship between monetary and real sector of an economy.Patinkins theory of the real balance effect provides the link between theoretical and empirical aspects. Taking into consideration further assumptions on aggregation, dynamics and problems of definition of variables, consumption functions of different aggregation levels are specified. Including effects of interest rates and credits one arrives at a first assessment of monetary effects on private consumption expenditures as found from single equation estimates. Significant credit and wealth effects are obtained. Later, systems of equations are estimated and used to investigate real—monetary sector interaction. They allow also a dynamic analysis.

On the Validity of NSS Estimates of Consumption Expenditure

We propose to examine here the NSS estimate of consumption expenditure as a measure of the aggregate private consumption expenditure. Private consumption expenditure, today, is of the order of 80 per cent of the net national product (NNP) at market prices. The estimate of NNP in India does not depend on survey consumption data, and is based largely on information on output. A substantial part of the aggregate NNP in a particular year is based on projections and surmises and does not depend on direct information pertaining to the year. Consequently, corroboration of a sizable part of it by a completely independent survey estimate will be welcome provided we are satisfied about its validity and accuracy.

NATIONAL PRODUCT AT CONSTANT PRICES IN THE FEDERAL REPUBLIC OF GERMANY

With few exceptions, only cormmodity flows and values which can be determined by means of commodity flows (flows of goods and services) are calculated in constant prices in the official national accounts of the Federal Republic of Germany. Figures an the industrial origin and the final use of the national product are published, the former according to thirty industries, the latter according to the major types of uses of which in particular private consumption expenditure has been further analysed.The computations at constant prices are based on market prices and not on factor costs. It is only on this basis that a uniform valuation of the production and the expenditure side can be made since the turnover tax, which is the most important indirect tax, is contained in the elements of final demand in varying shares and cannot be eliminated (the tax is part of the price and has cumulative effect).The computation at constant prices presupposes a breakdown of the values in current prices according to quantities and prices. This raises a number of problems, e.g. because seller and buyer may consider differing aspects‐production costs, technical attributes, etc., on the one hand, and use etc., on the other hand. In part there exist only vague ideas, or no ideas at all, as to what is to be considered‐from a theoretical point of view‐as quantity and price. In other cases the two values can only with great difficulties, if at all, be quantified, or there exists no market price and only the production costs are available. The author deals in greater detail with differences in quality and new commodities, the determination and treatment of quantities and prices for services, in particular for trade services (services attached to goods), the computation of government services at constant prices considering the development of productivity in public service, the determination of the values calculated as balances, above all the treatment of changes in the terms of trade for net exports of goods and services, the computation of the contributions of industries to the gross domestic product and, finally, the reconciliation of the production and the expenditure side.In a third section the author deals with index formulae and the base year. In the majority of cases values are deflated; partly, however, they are currently adjusted by means of volume and quantity data. On the production side the two methods are in part combined.In a concluding section a survey is provided of the computation methods used in the Federal Republic of Germany and on the available material for the computations. Mention is made of depreciation at constant prices.

A Multi-Sectoral Study of Economic Growth: Some Comments

(1) Mr. Zabel contends that there is a mathematical lapse in my analysis which obscures the economic meaning of the solution. His point is that I have one equation (No. 4 in his article), but neglected to eliminate a variable. The relationship in question says that the sumn of the expenditures on all items of private consumption equals total private consumption expenditure. This relationship, however, is used in deriving the set of demand functions in such a way that when demand satisfies the demand functions, this relationship is automatically satisfied. It cannot, therefore, be introduced in the system as an independent equation; in other words, it should be removed . But this does not imply that one could eliminate one variable (cf. p. 29 of my book). Alternatively one might, of course, remove one of the demand functions and keep the budget equation in the system. This procedure lacks the symmetry of the procedure chosen in my book. Zabel's contention on this point affects his revised model. In the model presented in the appendix to his article, he counts an equation (4a) in which all coefficients [(1 LjGj) and (gj Lig,j) for j-O, 1, ..,19] must vanish because of the relationships which the demand coefficients must obey (cf. p. 98 of my book). I think, therefore, that unless some additional equation is introduced one cannot obtain a determinate model by retaining both consumers' expenditures Y and total investment as endogenous variables, as is attempted in his model.

A New Goal of National Policy: Full Employment

this brief comment I am going to limit myself to what I regard as essentials. I am not going to discuss details, important enough in themselves, but which I think can, among reasonable men, be settled in a fairly satisfactory manner. I do not think it is worth while to waste a lot of time on whether a high level of is a better term than employment. Both phrases need definition. Everyone is agreed that in a dynamic market economy there will be seasonal, frictional, and transitional unemployment associated with changes in the seasons, the introduction of new products and of new methods of production. Moreover, in a free society where wage earners work whom they please, there will of necessity be a degree of labor turnover. Full employment in the United States, in my judgment, means perhaps 4 or 5 per cent unemployed at any one time; assuming a labor force of around 6o million, this would mean unemployment of 2 /2 to 3 million. If on the average 5 weeks should elapse before a new job was found, this would mean that 25 to 30 million people would shift jobs in each 12-month period. Thus an average of 4 to 5 per cent unemployed provides enormous flexibility in the labor market. Important as these matters of detail and definition are, I turn now to what I regard as more fundamental considerations. What is really important is that the Murray Full Employment Bill, if enacted into law, would, in common with the British and Canadian state papers on Employment Policy, represent a new attitude, purpose, and responsibility of the central government with respect to the problem of unemployment. Instead of palliative and ameliorating measures, these state papers announce a positive national policy with respect to the maintenance of employment, production, and national income. The British and Canadian state papers recognize that these are novel experiments. This involves a new approach and a new responsibility the State, says the British White Paper, and adds, In these matters we shall be pioneers. Similarly the Canadian state paper states, We must determine therefore to learn from experience, to invent and improve the instruments of our new policy as we move forward to its goal.... The Government is inaugurating policies which break new ground and is confident that these policies, with full public understanding and support, will achieve . . . satisfactory results of decisive importance. later years as experience grows they can be made to yield ever improved results, which will mark a new era in Canadian development. Apart from announcing a new goal of national policy and a new responsibility of government, these documents are of the utmost significance in that each commits the government in question to a periodical and continuous assessment of the employment situation. The Murray Bill makes it the duty of the President to transmit to Congress at the beginning of each regular session (and thereafter supplemental reports from time to time) a National Production and Employment Budget setting forth the estimated trends and prospective developments with respect to the size of the labor force, the gross national product, national income, private consumption expenditures, private investment expenditures, state and local outlays, and alternative ranges of federal expenditures. The British White Paper stresses the importance of establishing a central staff qualified to measure and analyze economic trends, and it lists the principal classes of statistics which must be obtained for the efficient operation of an employment policy. These procedures assure that the government will continually take the pulse and temperature, so to speak, of the economy in order to measure how well its policies are succeeding in achieving one of its primary responsibilities. Thus the