Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
970371 | Journal of Public Economics | 2009 | 18 Pages |
Abstract
In the US, aggregate private consumption changes are excessively sensitive not only to current and lagged changes in income, but also to current and lagged changes in government expenditures. I give a new theoretical interpretation to this observation. I show that this excess sensitivity arises when consumers take into account the link between taxes and government expenditures (i.e. when they are Ricardian), but lack exact information on the aggregate economy. While the model provides a simultaneous explanation for both types of excess sensitivity, the strong restrictions that it imposes on the data are not supported by the results of econometric estimation.
Keywords
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Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Lorenzo Pozzi,