Paper #911

Título:

Understanding the effects of government spending on consumption

Autores:

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

Data:

Septiembre 2002

Resumen:

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.

Palabras clave:

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

Códigos JEL:

E32, E62

Área de investigación:

Macroeconomía y Economía Internacional

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