{"title":"Impact of Government Spending on Private Consumption and on the Economy: Case of Thailand","authors":"Paitoon Kraipornsak","volume":42,"journal":"International Journal of Economics and Management Engineering","pagesStart":1002,"pagesEnd":1010,"ISSN":"1307-6892","URL":"https:\/\/publications.waset.org\/pdf\/8479","abstract":"The recent global financial problem urges government\r\nto play role in stimulating the economy due to the fact that private\r\nsector has little ability to purchase during the recession. A concerned\r\nquestion is whether the increased government spending crowds out\r\nprivate consumption and whether it helps stimulate the economy. If\r\nthe government spending policy is effective; the private consumption\r\nis expected to increase and can compensate the recent extra\r\ngovernment expense. In this study, the government spending is\r\ncategorized into government consumption spending and government\r\ncapital spending. The study firstly examines consumer consumption\r\nalong the line with the demand function in microeconomic theory.\r\nThree categories of private consumption are used in the study. Those\r\nare food consumption, non food consumption, and services\r\nconsumption. The dynamic Almost Ideal Demand System of the three\r\ncategories of the private consumption is estimated using the Vector\r\nError Correction Mechanism model. The estimated model indicates\r\nthe substituting effects (negative impacts) of the government\r\nconsumption spending on budget shares of private non food\r\nconsumption and of the government capital spending on budget share\r\nof private food consumption, respectively. Nevertheless the result\r\ndoes not necessarily indicate whether the negative effects of changes\r\nin the budget shares of the non food and the food consumption means\r\nfallen total private consumption. Microeconomic consumer demand\r\nanalysis clearly indicates changes in component structure of\r\naggregate expenditure in the economy as a result of the government\r\nspending policy. The macroeconomic concept of aggregate demand\r\ncomprising consumption, investment, government spending (the\r\ngovernment consumption spending and the government capital\r\nspending), export, and import are used to estimate for their\r\nrelationship using the Vector Error Correction Mechanism model.\r\nThe macroeconomic study found no effect of the government capital\r\nspending on either the private consumption or the growth of GDP\r\nwhile the government consumption spending has negative effect on\r\nthe growth of GDP. Therefore no crowding out effect of the\r\ngovernment spending is found on the private consumption but it is\r\nineffective and even inefficient expenditure as found reducing growth\r\nof the GDP in the context of Thailand.","references":"[1] Pieroni, L. 2009. \"Does Defend Expenditure Affect Private\r\nConsumption? Evidence from the United States\", Economic Modelling,\r\n26: 1300-1309.\r\n[2] Deaton, A.S., and Muellbauer, J., 1980. An Almost Ideal Demand\r\nSystem, American Economic Review, 70, 312 - 326.\r\n[3] Akmal, M. and Stern, D.I., 2001. \"The Structure of Australian\r\nResidential Energy Demand\", Working Papers in Ecological\r\nEconomics no. 0101, The Australian National University.\r\n[4] Anderson, G. and Blundell, R., 1983. 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Sepatember.","publisher":"World Academy of Science, Engineering and Technology","index":"Open Science Index 42, 2010"}