Searching for Fiscal Effects: A VECM model of Household Consumption Expenditures

Abstract

Consumption expenditure is an important component of aggregate demand. Recent theoretical and empirical studies search for possible Keynesian / Non Keynesian fiscal impacts on household consumption decisions. Besides providing insight to determinants of consumption decisions, these studies also provide guide to policy solutions to high and risky current account deficits and high and persisting inflation rate problems. This empirical study for Turkey is another attempt to search for possible Keynesian fiscal policy effects on private sector consumption decisions. Distinguishing long run and short run affects indicate that expansionary Keynesian impact of fiscal policy on private sector consumption decision is significant only if fiscal policy is sustainableConsumption; Fiscal Policy; Vector Error Correction Models