Is the Relationship Between Government Spending and Private Consumption in Egypt Symmetric?

Abstract

The aim of this study, using Egyptian data from 1970 to 2016, is to explore the relationship between government spending and private consumption spending and to understand whether the relationship between the two is symmetric. The study uses the autoregressive distributed lag (ARDL) approach to explore a cointegration relationship between the two variables, and the nonlinear autoregressive distributed lag (NARDL) approach to test the hypothesis of a symmetric relationship between the two variables. By applying the ARDL approach, the study concludes that the effect of government spending on consumption spending is not significant in the long term. By applying the NARDL approach, the study concludes that: the hypothesis of the presence of a symmetric relationship is not accepted, there is a crowding-out relationship from the positive shocks of government spending and the substitutability coefficient between the two types of spending is 0.8699. JEL Classification: E12, E21, F62, H50