The Effect of Government Expenditure on Private Consumption

Abstract

This article aimed to study the effect of the total government expenditure on private consumption expenditure. This study used time series data from the first quarter of 2009 to the last quarter of 2022, a total of 56 observations, collected from Office of the National Economics and Social Development Council and Bank of Thailand and Ministry of Commerce. The cointegrating test by method of Johansen and Juselius was used for long-run relationship test of variables. The Error Correction Model was applied to measure short-run adjustment toward long-run equilibrium. This study found that the total government expenditure and consumer price index were positively corelated with the private consumption. On the other hand, the average wage, policy rate and economic condition variable shown negative effect. Moreover, the private consumption’s short-run adjustment decreased at 9 percent per quarter. Therefore, the government sector should stimulate the private consumption by increasing in the government expenditure and other factors, including reduction of the policy rate from the central bank.