Your task is to build and estimate an econometric model that might be used to estimate the relationship between government spending and household consumption. Make sure that you understand what you are going to estimate, that you include other relevant explanatory variables on top of government expenditures, and that you interpret your estimates accordingly. In case you do not trust your estimates, write why. The purpose of this assignment is to practice working with panel data. While the recent literature uses panel-VAR (vector autocorrelation) approach to model the effects of government spending (or, in general, the effects of fiscal policy), let us experiment here with simple panel data methods.

Estimate your model using one or several approaches of your choice. Report results in a comprehensive table. If you report more than one set of results (from more than one model and/or more than one estimation technique), then comment which of them is the most reliable and why.

Comment on your estimates. Do you find them intuitive? Is there something you would do differently if you had more time and/or better data? Why?