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This study examines the
impact of government spending on household consumption for the Economic
Community of West African States (ECOWAS). As a modelling strategy, we use the
Common Correlated Effect Mean Group (CCEMG) estimator that accounts for both
parameter heterogeneity and cross-sectional
dependence. The study provides various pieces of evidence through
whole-panel and country-level analyses. The panel estimates indicate that
government consumption has, on average, a negative effect on private
consumption, implying that government and private consumption are substitutes.
Country-level results reveal, however, considerable heterogeneity in the degree
of substitutability across countries. They show crowding out effects in six
countries, crowding in effects in one country and no significant effect in five
countries. Therefore, government consumption is not a good instrument to
stimulate aggregate demand and economic growth in ECOWAS countries.