We empirically revisit the crowding-in effect of government spending on private consumption
based on rolling windows of U.S. data. Results show that in earlier samples government spending
is increasingly crowding in private consumption; however, this relation is reverted in the latest
periods. We propose a model embedding non-separable public and private consumption in the
utility function and rule-of-thumb consumers to assess the sources of non-monotonic changes in
the transmission of the shock. The iterative full information estimation of the model reveals that
changes in the co-movement between private and public spending is primarily driven by the
fluctuations in the elasticity of substitution between private and public consumption, the share of
financially constrained consumers, and the elasticity of intertemporal substitution.
Add to Cart by clicking price of the language and format you'd like to purchase
Available Languages and Formats
Prices in red indicate formats that are not yet available but are forthcoming.