Public Goods, Merit Goods, and the Relation Between Private and Government Consumption

Fiorito, Riccardo; Kollintzas, Tryphon

doi:10.2139/ssrn.326640

Cited by 45 publications

(58 citation statements)

References 38 publications

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“…10 On the other hand, S&L government employees provide mainly education, health care and transportation services. 11 Research by Fiorito and Kollintzas (2004) with European data has indeed shown that the degree of complementarity between government and private consumptions is not homogeneous over types of public expenditures. In particular, they …nd that while some categories of public spending seem to be substitutable with private consumption, there are also public expenditure categories which are complements to private spending.…”

Section: The Complementarity Between Public and Private Goodsmentioning

confidence: 99%

“…For instance, federal government employees largely comprise military and defense employees, while state and local government employees provide mainly education, health care and transportation services. Research by Fiorito and Kollintzas (2004) using European data has indeed shown that the degree of complementarity between government and private consumptions is not homogeneous over types of public expenditures. In particular, "merit goods", including health and education, complement private consumption while "public goods", referring to 2 The response of private consumption following total government spending shocks has received much attention in the literature.…”

Section: Introductionmentioning

confidence: 99%

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The government wage bill and private activity

Bermperoglou

Pappa

Vella

2017

Journal of Economic Dynamics and Control

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We estimate the effects of public wage expenditures on output and the labor market in U.S. data by identifying shocks to public employment and public wages using sign restrictions. Public wage shocks do not induce significant effects on output, but disaggregating by government level reveals that their effects can be contractionary at the federal level and expansionary at the state and local level. Public employment shocks are expansionary at all government levels by crowding in private consumption and increasing labor force participation and private-sector employment. Local government wage shocks lead to a similar crowd in of private consumption, while shocks to federal government wages lead to public-private wage spillovers, inducing a negative labor demand effect, a sharp fall in private-sector employment and an increase in unemployment. We develop a DSGE model with public good production, search and matching frictions, and endogenous labor force participation that matches the qualitative properties of the empirical evidence. The sign of the output response for public wage shocks depends crucially on the degree of complementarity between public and private goods in the consumption bundle.

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Section: The Complementarity Between Public and Private Goodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The government wage bill and private activity

Bermperoglou

Pappa

Vella

2017

Journal of Economic Dynamics and Control

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“…First, the Bayesian estimation shows that a DSGE model with non-separable government spending in the utility function outperforms a model 2 There exist many concrete examples for which private consumption and public expenditures are complements (health care, education, etc.). As discussed in Fiorito and Kollintzas (2004), the complementarity may reveal relative inefficiency in the provision of public goods. Let us consider the case of education.…”

Section: Introductionmentioning

confidence: 99%

In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area

Fève

Sahuc

2016

J of Applied Econometrics

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This paper applies the DSGE-VAR methodology to assess the size of fiscal multipliers in the data and the relative contributions of two transmission mechanisms of government spending shocks, namely hand-to-mouth consumers and Edgeworth complementarity. Econometric experiments show that a DSGE model with Edgeworth complementarity is a better representation of the transmission mechanism of fiscal policy as it yields dynamic responses close to those obtained with the flexible DSGE-VAR model (i.e. an impact output multiplier larger than one and a crowding-in of private consumption). The estimated share of hand-to-mouth consumers is too small to replicate the positive response of private consumption.

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“…For example, Campbell and Mankiw (1990) pointed toward an independence relationship in U.S. data, whereas Evans and Karras (1998) showed evidence that nonmilitary spending and private consumption in a data set of 66 countries are substitutes. Fiorito and Kollintzas (2004), on the other hand, found complementarity between aggregate government consumption and aggregate private consumption in European countries.…”

Section: Alternative Model Specifications and Robustnessmentioning

confidence: 97%

Public consumption over the business cycle

Bachmann

Bai

2013

Quantitative Economics

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What fraction of the business cycle volatility of government purchases is accounted for as endogenous reactions to overall macroeconomic conditions? We answer this question in the framework of a neoclassical representative household model where the provision of a public consumption good is decided upon endogenously and in a time-consistent fashion. A simple version of such a model with aggregate productivity as the sole driving force fails to match important features of the business cycle dynamics of public consumption, which comes out as not as volatile and persistent as in the data and too synchronized with the cycle. We add implementation lags and implementation costs in the budgeting process to the model, plus taste shocks for public consumption relative to private consumption, and achieve a better fit to the data. All these ingredients are essential to improve the fit. In our baseline specification 50% of the variance of public consumption is driven by aggregate productivity shocks.

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Public Goods, Merit Goods, and the Relation Between Private and Government Consumption

Cited by 45 publications

References 38 publications

The government wage bill and private activity

The government wage bill and private activity

In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area

Public consumption over the business cycle

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