Articles

Nonseparable preferences, fiscal policy puzzles and inferior goods

F. BILBIIE

Journal of Money, Credit, and Banking

March-April 2009, vol. 41, n°2/3, pp.443-450

Departments: Economics & Decision Sciences


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


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