Fiscal Policy Puzzles and Intratemporal Substitution among Private Consumption, Government Spending and Leisure

This paper investigates how does the response of private consumption to government spending be changed by intratemporal substitution among private consumption, government spending and leisure. We show that the response of private consumption to government spending can be positive even if private consumption and government spending are not complements and private consumption and leisure are not substitutes. In this case, substitution between leisure and government spending plays important role. This view has been overlooked in previous work.