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The effectiveness of fiscal policy within business cycle-Ricardians vs. non-Ricardians approach

Author

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  • Piotr Krajewski

    (Department of Macroeconomics, University of Lodz, Lodz, Poland)

  • Agata Szymanska

    (Department of Macroeconomics, University of Lodz, Lodz, Poland)

Abstract

This study aims to measure the impact of the share of non-Ricardian households on fiscal multipliers. We show that the share of non- Ricardian households in Hungary increased significantly after crisis began and explain why the plausible reason for this increase is the higher level of liquidity constraints during crisis. We also show that after crisis, when the share of non-Ricardians in Hungary was very high, the impact of government spending shocks on GDP was almost twice as strong as before the Great Recession. Thus, the results of the study indicate that there is some trade-off between the effectiveness of fiscal policy as a tool of GDP stabilization and household access to the credit market.

Suggested Citation

  • Piotr Krajewski & Agata Szymanska, 2019. "The effectiveness of fiscal policy within business cycle-Ricardians vs. non-Ricardians approach," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 19(2), pages 195-215.
    • Handle: RePEc:bic:journl:v:19:y:2019:i:2:p:195-215
    DOI: 10.1080/1406099X.2019.1609228
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    More about this item

    Keywords

    Government spending multiplier; non-Ricardian households; liquidity constraints; new-Keynesian model;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving

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