Fiscal Policy and Private Consumption in Industrial and Developing Countries

ALFREDO SCHCLAREK

San Jose, Costa Rica

Congreso; LACEA 2004 Annual Meeting; 2004

Asociación de Economía de América Latina y el Caribe (LACEA)

This paper empirically studies the effects of fiscal policy shockson private consumption. Further, it investigates if the initialfinancing needs of the government or previous fiscal deficits affectthat relationship. We use yearly data between 1970 and 2000 forforty countries, of which 19 are industrialized and 21 aredeveloping countries. In general, the estimation results seem toindicate that government consumption shocks have Keynesian effectsfor both industrial and developing countries. In the case of taxshocks, the evidence is mixed. Furthermore, there is no evidencethat favor the hypothesis of expansionary fiscal consolidations.