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R>This section briefly outlines the main competing theories regarding the influence offiscal policies on consumption and aggregate demand2.The simplest Keynesian view assumes that fiscal policy influences aggregatedemand in a straightforward fashion: fiscal expansion stimulates consumption anddemand, while fiscal contraction reduces them. In the short run, output followsaggregate demand changes due to a positively sloped aggregate supply curve. This is
what Elmendorf & Mankiw (1998) call the ‘conventional view’ of fiscal policy.Approaches based on rational, forward-looking consumers and PILCH challengethese conventional predictions. A ‘logical completion’ of PILCH is Ricardianequivalence (Seater, 1993, p. 143). According to this approach, when governmentspending is fixed, the tax/debt mix is irrelevant for consumption decisions; it does
not change the path of private consumption, the only effect being the altered
composition of national savings. This does not imply that fiscal policy as a whole
does not influence consumption, since what matters is the level of the government’suse of resources, i.e. government spending. Provided government spending does notenter into consumers’ utility function, a permanent rise in public expenditure means
an equal decrease in permanent income, hence any increase in public spending isoffset by a decrease in private consumption (Seater, 1993; Barro, 1989). Atemporary increase in public spending, holding its permanent level fixed, will not
change the consumption pattern, which may imply a temporary increase in aggregatedemand3.
The assumption of a forward-looking consumer, who is not restricted byliquidity constraints, and who maximizes his and his descendents’ lifetime utilityrenders the Keynesian theory of fiscal policy almost completely irrelevant. Of
course, if we relax any of these assumptions the results of the PILCH/Ricardo viewchange – they become more Keynesian, in the sense that fiscal policy has Keynesianeffects on consumption.

 

NOTES
1 In the long run, the composition and magnitude of government spending and taxes, as well as the
amount of public debt, may exert a significant impact on the growth rate.
2 A comprehensive review can be found in Hemming, Kell & Mahfouz (2002).
3 Consumption plans may be affected by public spending not only through the budget constraint but also
through their utility, provided that government consumption enters into private utility functions.
Depending on whether public consumption is a substitute or complement for private consumption, its
increase will either decrease or increase private consumption.
4 Ricardo himself did not belief in Ricardian equivalence (Elmendorf & Mankiw, 1998).
5 These four models emphasize the demand-side sources of the non-Keynesian effects of fiscal policy.
Some studies (see for example Alesina, Ardagna, Perotti & Schiantarelli, 1999) argue that the main
reason for non-Keynesian effects lies on the supply side.
6 The ‘PILCH’ consumers do not react to expected changes in fiscal policy. Consumption only changes
when fiscal policy is unexpected.
7 They argue that as public debt increases, banks may reduce the amount they lend to households.
8 Note that a non-Keynesian effect is more probable when consumers are not liquidity-constrained.
9 We follow the conclusion of Cour, Dubois, Mahfous & Pisani-Ferry (1996) that consumption se本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。