The Impact of Fiscal Policy on Private Consumption in Developing Countries: PVAR and Dynamic Panel Data Approaches

This paper studies the effects of fiscal policy on private consumption in developing countries. We use annual data for 50 countries which have high or upper middle income in 1980-2014. Estimation of the model using GMM and Panel VAR methods show that government expenditure and tax variables have Keynesian effects in these countries. In the other words, according to results of GMM estimation, government expenditure has the positive and significant effect on household consumption expenditure and tax on income has the negative and significant effect on household consumption expenditure. Also, the results of PVAR estimation show that tax shock has the negative effect on private consumption and government expenditure shock has negative but instability effect on private consumption.