Search results for "Fiscal Policy"

Discretionary vs nondiscretionary in fiscal mechanism – non-automatic fiscal stabilisers vs automatic fiscal stabilisers

2015

The goal of the present study is to increase the intelligibility of macroeconomic phenomena triggered by governmental intervention in economy by means of fiscal policies. During cyclical movements, fiscal policy can play an important role in order to help stabilise the economy. But discretionary policy usually implies implementation lags and is not automatically reversed when economic conditions change. In contrast, automatic fiscal stabilisers (SFA) ensure a prompter, and self-correcting fiscal response. The present study aims to tackle the topic of discretionary vs nondiscretionary characteristic of fiscal stabilisers (SF). In this context, the scope of the research undertaking is to laun…

Is the budget deficit sustainable when fiscal policy is non-linear? The case of Spain

2006

In this paper, we re-examine the long-run sustainability of budget deficits, when fiscal policy is conducted as a non-linear process. Our empirical methodology makes use of recent developments on threshold cointegration that consider the possibility of a non-linear relationship between government expenditures and revenues. The analysis is applied to the case of Spain, a country that has recently accomplished an important fiscal consolidation. Overall, our results suggest the presence of significant non-linear effects in Spanish fiscal policy, so that fiscal authorities would cut deficits only if they are ‘large’, which would assure in turn their long-run sustainability.

Deficit sustainability, and monetary versus fiscal dominance: The case of Spain, 1850–2000

2014

Abstract In this paper, we provide a test of the sustainability of the Spanish government deficit over the period 1850–2000, emphasizing the role played by monetary and fiscal dominance in order to get fiscal solvency. Since the condition of fiscal solvency was satisfied, government deficit would have been sustainable along the sample period. In addition, the whole period can be characterized as one of fiscal dominance.

Fiscal impact of the migration phenomenon

2019

How best to measure discretionary fiscal policy? Assessing its impact on private spending

2013

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 …

The macroeconomic effects of public investment: Evidence from advanced economies

2015

This paper provides new evidence of the macroeconomic effects of public investment in advanced economies. Using public investment forecast errors to identify the causal effect of government investment in a sample of 17 OECD economies since 1985 and model simulations, the paper finds that increased public investment raises output, both in the short term and in the long term, crowds in private investment, and reduces unemployment. Several factors shape the macroeconomic effects of public investment. When there is economic slack and monetary accommodation, demand effects are stronger, and the public-debt-to-GDP ratio may actually decline. Public investment is also more effective in boosting ou…

The Effects of Social Spending on Economic Activity: Empirical Evidence from a Panel of OECD countries

2012

The aim of this paper is to assess the short term effects of social spending on economic activity. Using a panel of OECD countries from 1980 to 2005, the results show that social spending has expansionary effects on GDP. In particular, we find that an increase of 1% of social spending increases GDP by about 0.1 percentage point, which, given the share of social spending to GDP, corresponds to a multiplier of about 0.6. The effect is similar to the one of total government spending, and it is larger in periods of severe downturns. Among spending subcategories, social spending in Health and Unemployment benefits have the greatest effects. Social spending also positively affects private consump…

Stabilization effects of social spending: Empirical evidence from a panel of OECD countries

2010

Abstract The aim of this paper is to assess the ability of social spending to smooth output shocks and to provide stabilization. The results show that overall social spending is able to smooth about 15 percent of a shock to GDP. Among its sub-categories, social spending devoted to Old Age, Health and Unemployment are those that contribute more to provide smoothing. Moreover, the stabilization effects of social spending are significantly larger in those countries where the size of social spending is higher, and in countries in which social spending is less volatile. The empirical results are economically and statistically significant, and robust.

FISCAL POLICY, MACROECONOMIC STABILITY AND FINITE HORIZONS

2003

In this paper we analyse the stabilisation properties of distortionary taxes in a New Keynesian model with overlapping generations of finitely-lived consumers. In this framework, government debt is part of net wealth and this adds a number of interesting channels through which fiscal policy could affect output and inflation. Output volatility, in presence of technology shocks, is not substantially affected by the operation of automatic stabilisers but we find interesting composition effects. While the presence of finitely-lived households strengthens the stabilisation performance of distortionary taxes through the reduction of the volatility of consumption, it does so at the cost of more vo…

Using time-varying transition probabilities in Markov switching processes to adjust US fiscal policy for asset prices

2013

This paper tests for nonlinear effects of asset prices on the US fiscal policy. By modeling government spending and taxes as time-varying transition probability Markovian processes (TVPMS), we find that taxes significantly adjust in a nonlinear fashion to asset prices. In particular, taxes respond to housing and (to a smaller extent) to stock price changes during normal times. However, at periods characterized by high financial volatility, government taxation only counteracts stock market developments (and not the dynamics of the housing sector). As for government spending, it is neutral vis-a-vis the asset market cycles. We conclude that, correcting the fiscal balance and, notably, the rev…