Paper #911

Títol:

Understanding the effects of government spending on consumption

Autors:

Jordi Galí, J. David López-Salido i Javier Vallés

Data:

Setembre 2002 (Revisió: Agost 2005)

Resum:

Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be easily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending.

Paraules clau:

Rule-of-thumb consumers, non-Ricardian households, fiscal multiplier, government spending, Taylor rules

Codis JEL:

E32, E62

Àrea de Recerca:

Macroeconomia i Economia Internacional

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