The Influence of Fiscal Policy on Household Consumption in the European Union
 
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Publish date: 2005-08-31
 
Gospodarka Narodowa 2005;201(7-8):85–100
ABSTRACT
The influence of fiscal policy on economic trends is a disputed issue in both theoretical and empirical terms. Theoretical considerations on the short-term influence of fiscal policy on aggregate demand feature three basic approaches: Keynesian, neoclassicist-based on the theory of permanent income-and one tentatively referred to as „non-Keynesian” or „nonlinear.” According to this last hypothesis, the effects of fiscal policy may be nonlinear, which means that the same policy may produce different results if applied in different conditions. These different theoretical predictions about the effects of fiscal policy result from different approaches to the response of consumers to fiscal policy changes. The article sets out to examine the influence of fiscal policy on household consumption in developed European Union countries. The article is made up of two main parts, a theoretical part that presents models applying to the short-term influence of fiscal policy on private consumption, and an empirical part that describes the results of the author’s own research into this problem. Conclusions presented in the article indicate that the influence of fiscal policy modifications on consumption may be nonlinear. When the public finance deficit is excessive, the influence of fiscal policy changes is Keynesian in nature. This means that a reduction of the deficit leads to a decrease in consumption and the other way round. When the public finance balance is upset, the influence of fiscal policy on consumption is much smaller.
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ISSN:0867-0005