Nonseparable Preferences, Frisch Labor Supply, and the Consumption Multiplier of Government Spending: One Solution to a Fiscal Policy Puzzle

Details

Serval ID
serval:BIB_D48592153232
Type
Article: article from journal or magazin.
Collection
Publications
Title
Nonseparable Preferences, Frisch Labor Supply, and the Consumption Multiplier of Government Spending: One Solution to a Fiscal Policy Puzzle
Journal
Journal of Money, Credit and Banking
Author(s)
BILBIIE F.O.
ISSN
0022-2879
Publication state
Published
Issued date
02/2011
Peer-reviewed
Oui
Volume
43
Number
1
Pages
221-251
Language
english
Abstract
This paper proposes a theoretical explanation of the positive consumption multipliers of government spending often found in the data. The explanation requires two ingredients. First, labor demand expands (e.g., prices are sticky). Second, general nonseparable preferences over consumption and leisure should be such that the two goods are substitutes; that is, Frisch labor supply elasticity is lower than the constant‐consumption elasticity; this implies that constant‐consumption labor supply shifts left. Existing empirical evidence on the relative magnitudes of the two elasticities supports this hypothesis. The parametric conditions under which the result occurs are consistent with restrictions of concavity and noninferiority of consumption and leisure.
Keywords
non-separable preferences, fiscal policy, government spend- ing, private consumption, inferior goods.
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Create date
01/11/2018 8:38
Last modification date
20/08/2019 15:54
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