Non-Separable Preferences, Frisch Labor Supply and the Consumption Multiplier of Government Spending: One Solution to a Fiscal Policy Puzzle
Article dans une revue: 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.
Auteur(s)
Florin Bilbiie
Revue
- Journal of Money, Credit and Banking
Date de publication
- 2011
Mots-clés JEL
Mots-clés
- Nonseparable preferences
- Fiscal policy
- Government spending
- Consumption multiplier
- Sticky prices
- Frisch elasticity of labor supply
- Substitutability
Pages
- 221-251
URL de la notice HAL
Version
- 1
Volume
- 43