Fiscal policy and aggregate consumption: new evidence from the United States

Darby, J. and Malley, J. (1996) Fiscal policy and aggregate consumption: new evidence from the United States. Scottish Journal of Political Economy, 43(2), pp. 129-145. (doi: 10.1111/j.1467-9485.1996.tb00669.x)

Abstract

In this paper we estimate the marginal rate of substitution between aggregate per-capita consumption and per-capita government expenditure on goods and services using US quarterly data over the period 1953 to 1993. This estimate is an important input to any attempt to assess the overall effectiveness of fiscal policy since it directly affects the size of the fiscal policy multiplier. Other recent consumption studies which incorporate the effects of government expenditure have failed to establish a stable estimate of the marginal rate of substitution. We argue that this failure results from imposing the unrealistic assumption that this parameter is constant. In contrast, we allow the marginal rate of substitution to depend on both the level and composition of government spending.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Malley, Professor Jim
• Authors: Darby, J., and Malley, J.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Scottish Journal of Political Economy
• Publisher: Wiley-Blackwell Publishing Ltd.
• ISSN: 0036-9292
• ISSN (Online): 1467-9485
• Published Online: 09 October 2007