INTERTEMPORAL SUBSTITUTION IN WAR AND PEACE - EVIDENCE FROM THE UNITED-KINGDOM, 1830-1990

In this paper we present estimates of individual value of public consu mption and the intertemporal substitution elasticity by means of the E uler-equation approach. Historical data for the United Kingdom coverin g the period 1830-1990 are used to measure the effect of public consum ption on private consumption. The U.K. intertemporal substitution elas ticity is 0.24 and the shares of private and public consumption in the aggregate consumption bundle are 92% and 8%, respectively. The positi ve valuation applies only to wartime years. In peacetime years governm ent and private consumption goods can at best be described as independ ent goods.