Dynamic Relationship between Income and Consumption: A Time Series Analysis of Spain

Abstract

This study examined the household and government consumption with income separately both in short and long run.The data is collected from the WDI from 1960 to 2010 of spain. Analysis is  done by using the co integration technique and error correction model. The results of the study demonstrate that household consumption is more than that of income in short run but in long run with the adjustment rate of 7% the consumption is less than income. In contrast ,the expenditures of government and consumption is more than that of its income in long run and vice versa. The reason for the more expenditures in long run is due to the debt financing.

Keywords: Income, Consumption, Co integration, Error correction model, Spain