Munich Personal RePEc Archive

Private and public consumption and counter-cyclical fiscal policy

Marattin, Luigi (2007): Private and public consumption and counter-cyclical fiscal policy. Published in: International Journal of Economics , Vol. 2, No. 1 (June 2008)

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Abstract

This paper bulds a closed-economy NK-DSGE model with no capital, in which consumers value both private and public consumption and fiscal policy is determined by a feedback rule responding to output gap. We analyse how different degrees of substitutatibility/complementarity between private and public consumption and a pro/counter-cyclical stance of fiscal policy affect equilbrium determinacy and the response of the economy to a wide range of shocks. Results show that determinacy is ensured by counter-cyclical fiscal policy under complementarity; increasing substitutability also pro-cyclical stance becomes stable. Differences can be observed also in response to shocks.

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