Public Goods, Merit Goods, and the Relation between Private and Government Consumption

41 Pages Posted: 6 Dec 2002

See all articles by Riccardo Fiorito

Riccardo Fiorito

University of Siena - Department of Economics

Tryphon Kollintzas

Athens University of Economics and Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2002

Abstract

In this Paper, we investigate the relation between public and private consumption, by constructing a general government spending dataset, by function, for twelve European Union countries. In particular, we split government consumption into two categories. The first category includes defence, public order, and justice ('public goods'). The second category includes health, education, and other services that could have been provided privately ('merit goods'). Equations from a relatively general theoretical model of household behaviour are estimated by GMM. The estimates are fairly robust in showing that public goods substitute, while merit goods complement, private consumption, and that the relation between merit goods and private goods is stronger than that between public goods and private goods. So that, in the aggregate, government and private consumption are complements. It also suggests that the potential calibration/estimation bias by ignoring the composition of government consumption might be substantial.

Keywords: Public goods, merit goods, government consumption, dynamic panel estimation

JEL Classification: C33, E60, H30

Suggested Citation

Fiorito, Riccardo and Kollintzas, Tryphon, Public Goods, Merit Goods, and the Relation between Private and Government Consumption (November 2002). Available at SSRN: https://ssrn.com/abstract=359500

Riccardo Fiorito (Contact Author)

University of Siena - Department of Economics ( email )

Piazza S. Francesco, 7
Siena, I-53100
Italy
+39 5 7723 2610 (Phone)
+39 5 7723 2661 (Fax)

Tryphon Kollintzas

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+30 1 825 6998 (Phone)
+30 1 823 1725 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom