Government debt, government spending, and private-sector behavior: comment

Article Abstract:

Roger C. Kormendi's 1983 article in American Economic Review calls for a consolidated approach to the examination of consumer behavior. His recommended method includes the implications of Ricardian equivalence and the possibility that government purchases of goods and services substitute for private consumption. However, the augmented equation nesting his consolidated approach is not general enough. The consolidated approach and a representative non-Ricardian approach are not well-supported when nested in a less restrictive specification.

Government spending policy, National debt, Consumer behavior, Public debts

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Fiscal policy and aggregate demand: comment

Article Abstract:

David Alan Aschauer, using a model of consumer behavior based on the permanent-income hypothesis in a 1985 paper, concluded that there was a significant amount of substitution between private consumption spending and government spending. However, John Y. Campbell and N. Gregory Mankiw, in a 1990 paper, reached a different conclusion. The validity of Aschauer's results was affected by the lack of use of disposable income in the model and by the utilization of an aggregate analysis of government spending.

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Fiscal policy and aggregate demand: reply

Article Abstract:

Fred C. Graham concludes that a 1985 study offers little support for the substitutability of private consumption and federal non-defense spending. However, Graham appears to have ignored the 1985 study's focus on the derivation of an evaluation of the Ricardian equivalence theorem using a Euler-equation framework. Graham's research does not prove that aggregate demand and private consumption increase as a result of tax reductions.

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