DOI: 10.36347/sjebm.2017.v04i09.003

Pages: 600-617

Over the past years, the relationship between government spending and private consumption remains one of the contentious issues in macroeconomics literature. The question of whether public expenditure is neutral or crowds in or out private consumption has dominated theoretical and empirical debate. Three major schools of thought on the issue are observed in the literature, these are the Ricardian equivalence theorem, the Keynesian framework and the Substitutability hypothesis each with a distinct set of explanations.