6533b832fe1ef96bd129afc2
RESEARCH PRODUCT
How best to measure discretionary fiscal policy? Assessing its impact on private spending
Ricardo M. SousaRicardo M. SousaDavide FurceriDavide FurceriLuca AgnelloLuca Agnellosubject
MacroeconomicsEconomics and EconometricsGovernmentCrowding in05 social sciencesPrivate spending1. No povertySettore SECS-P/02 Politica EconomicaFiscal unionFiscal policyTerm (time)Medium termCrowding-in and Crowding-out effects0502 economics and business8. Economic growthOpenness to experienceEconomics050207 economicsDiscretionary fiscal policy050205 econometricsdescription
We develop a novel empirical approach to assess the effect of discretionary fiscal policy on private spending consisting of three stages: 1) extract the discretionary component of fiscal policy by estimating a fiscal policy rule; 2) use the residuals of the first-stage regression to investigate the existence of crowding-in and/or crowding-out effects both in the short and the medium term; and 3) condition the response of private spending on a set of country characteristics. We find that an expansion in discretionary fiscal policy boosts growth in the short term, but is detrimental in the medium term. In addition, the empirical findings suggest that the effect of discretionary fiscal policy on private spending varies across regions and income groups, and depends on countries' economic characteristics such as the level of economic development, trade openness, government and country size.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2013-08-01 | Economic Modelling |