Irish Consumption: Testing the Permanent Income Hypothesis.

The "German view" of expansionary fiscal contractions is that the expansionary expectional effect would outweigh the Kynesian effect of a sever government spending cut. This view relies on consumers behaving according to the permanent income hypothesis; who see spending custs as signals to future income tax cuts and thus higher permanent income. In this paper we investigate whether the permanent income hypothesis is consistent with Irish data and find no supporting evidence.