This paper explores the question whether public and private consumption fluctuations in the US and the UK are interrelated. Based on annual historical data we find that government consumption is a normal substitute for private consumption. The share of public consumption in the individual consumption bundle ranges from 5 to 10% for the full sample periods (including wartime years). However, unrestricted estimation yields negative rates of time preference and restricted estimation leads to a rejection of the intertemporal substitution model of consumption. In addition, the applicability of the model of intertemporal substitution with respect to government consumption behaviour is tested: governments have a significantly higher intertemporal substitution elasticity than the individual consumer.
|Nummer van het tijdschrift||3|
|Status||Gepubliceerd - 03 aug 1999|