A Comprehensive Analysis of the Response of Private Consumption to Government Spending - Theoretical Economics Letters

TEL > Vol.7 No.7, December 2017

A Comprehensive Analysis of the Response of Private Consumption to Government Spending ()

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DOI: 10.4236/tel.2017.77133 928 Downloads 1,870 Views

Author(s)

Yoshito Funashima

Affiliation(s)

Faculty of Economics, Tohoku Gakuin University, Sendai, Japan.

ABSTRACT

This paper considers a simple model in which government spending is productive and has a complementary relationship with private consumption to study the response of the latter to government spending. We discuss how these two characteristics can yield empirical observations that indicate a positive response of private consumption to government spending. By assuming some plausible parameter settings, we demonstrate that these dual aspects of government spending, which are normally treated separately in the literature, are inseparably linked. Our findings reveal that in addition to the presence of complementarity, productivity—even if minimal—increases the likelihood of generating a positive consumption response.

KEYWORDS

Private Consumption, Government Spending, Productivity, Complementarity

Share and Cite:

Funashima, Y. (2017) A Comprehensive Analysis of the Response of Private Consumption to Government Spending. Theoretical Economics Letters, 7, 1965-1974. doi: 10.4236/tel.2017.77133.

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