Impact of Government Spending on Private Consumption: Evidence from ECOWAS Countries

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DOI: 10.4236/me.2019.103041    1,155 Downloads   4,577 Views  Citations
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ABSTRACT

This study examines the impact of government spending on household consumption for the Economic Community of West African States (ECOWAS). As a modelling strategy, we use the Common Correlated Effect Mean Group (CCEMG) estimator that accounts for both parameter heterogeneity and cross-sectional dependence. The study provides various pieces of evidence through whole-panel and country-level analyses. The panel estimates indicate that government consumption has, on average, a negative effect on private consumption, implying that government and private consumption are substitutes. Country-level results reveal, however, considerable heterogeneity in the degree of substitutability across countries. They show crowding out effects in six countries, crowding in effects in one country and no significant effect in five countries. Therefore, government consumption is not a good instrument to stimulate aggregate demand and economic growth in ECOWAS countries.

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Keho, Y. (2019) Impact of Government Spending on Private Consumption: Evidence from ECOWAS Countries. Modern Economy, 10, 600-614. doi: 10.4236/me.2019.103041.

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