Government Spending and Consumer Attitudes Toward Risk, Time Preference, and Intertemporal Substitution: An Econometric Analysis

We construct a model that considers the direct effects, if any, of government spending on the attitudes of a typical consumer toward risk, time preference, and intertemporal substitution. The null hypothesis is that a growing government sector does not affect the consumer's behavior, and the alternative is that it causes him to become less risk averse, more impatient to consume now rather than in the future, and less responsive to changes in real interest rates. If the alternative hypothesis is correct, then government growth may lead to lower economic growth. Using Greek annual aggregate data, 1960-1990, we can reject the null hypothesis.