Pitarakis, Jean-Yves and Tridimas, George
Total expenditure endogeneity in a system of demand for public consumption expenditures in the UK
Economic Modelling, 16, (2), . (doi:10.1016/S0264-9993(98)00043-1).
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Contrary to standard empirical studies of demand for public consumption expenditure a system of demand equations is examined where the total expenditure variable is considered endogenous in the sense that it is correlated with the equation errors. Using a recently available UK dataset we explore alternative specifications of an auxiliary equation for total expenditure, which depend on prices and other instrumental variables, and apply a Hausman-type and a likelihood ratio test of exogeneity. The results reject exogeneity and suggest that when endogeneity of total expenditure is taken into account the constraints of homogeneity and symmetry cannot be rejected.
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