Working Paper: NBER ID: w2032
Authors: Leonardo Leiderman; Assaf Razin
Abstract: This paper characterizes empirically how government budget variables, such as spending, taxes, and deficits, affected private-sector consumption in the high-budget-deficit economy of Israel during the first half of the 1980s. The paper develops and estimates an intertemporal optimizing model of consumption choice by finite-lived individuals. The evidence supports this formulation against the Ricardian infinite-horizon case, but it does not support it when compared to the unrestricted relations in the data.
Keywords: government budget; private consumption; deficits; Israel
JEL Codes: E21; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| current-period cut in taxes (H29) | perceived wealth (E21) |
| perceived wealth (E21) | consumption (E21) |
| government budget variables (H61) | private consumption (D19) |
| government budget deficit variables (H68) | consumption (E21) |
| government spending (H59) | private consumption (D19) |
| taxes (H29) | private consumption (D19) |