The Link between Government Spending, Consumer Confidence and Consumption Expenditures in Emerging Market Countries

Abstract

The impact of government spending on private consumption is extensively studied in the literature. However, the main theme of these studies is the possible crowding-in or crowding-out impact of government spending on consumer spending. This paper attempts to introduce a new variable to this well-known literature by investigating the existence of a relationship between government expenditure, consumer spending and consumer confidence for a group of emerging market countries. We examine whether a change in consumer confidence causes any change in government spending. Moreover, we analyze whether there is a feedback from government spending and private consumption to consumer confidence. Our empirical findings demonstrate the important role of consumer confidence on government spending and private consumption expenditures.