Abstract:

Consumption theories are divided into two groups according to whether the average propensity to consume is stable in the long run. Consumption theories in the first group (Relative, Permanent and Lifetime Income Hypothesis) state that the ratio of consumption to income is constant in the long run, therefore it is not possible for economic policies to increase output by stimulating consumption. Consumption theories in the other group (Absolute Income, Insufficient Consumption, Consumption Drag and Involuntary Compulsory Saving Theory) argue that the average consumption trend is not stable in the long run, therefore output can be increased with active economic policies. The main purpose of this study is to test whether the average consumption trend in D-8 countries is stable with the annual data of the 1982-2020 period. For this purpose, Panel Panic and Fourier LM unit root tests were used because of the cross-section dependence of the series. The findings reveal that the ratio of consumption to income in D-8 countries is not stable in the period examined. According to this result, the average consumption tendency does not return to the average in the D-8 country groups in the long run, and any shock in the economy can have permanent effects on both consumption and savings.

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