Nonseparable preferences, fiscal policy puzzles and inferior goods


Journal of Money, Credit, and Banking

mars-avril 2009, vol. 41, n°2/3, pp.443-450

Départements : Economie et Sciences de la décision

Non-separable preferences over consumption and leisure can generate an increase in private consumption in response to government spending, as found in the data, in a frictionless business cycle model. However, the conditions on preferences required for these result to obtain hold if and only if the consumption good is inferior. Similarly, positive co-movement of consumption and hours worked occurs if and only if either consumption or leisure is inferior.fiscal policygovernment spendinginferior goodsnonseparable preferencesprivate consumption