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The Relationship Between Large Fiscal Adjustments And Short-Term Output Growth Under Alternative Fiscal Policy Regimes

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  • Stephen M. Miller
  • Frank S. Russek

Abstract

A small but growing body of literature searches for evidence of non-Keynesian effects of fiscal contractions. That is, some evidence exists that large fiscal contractions stimulate short-run economic activity. This article continues that research effort by systematically examining the effects (if any) of unusual fiscal events-either non-Keynesian results within a Keynesian model or Keynesian results within a neoclassical model-on short-run economic activity. The authors examine this issue within three separate models-a St. Louis equation, a Hall-type consumption equation, and a growth accounting equation. The empirical findings do not provide strong systematic support for the view that unusually large fiscal contractions/expansions reverse the effects of normal fiscal events. Moreover, the authors find only limited evidence that trigger points are empirically important. Copyright 2003 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 21 (2003)
Issue (Month): 1 (01)
Pages: 41-58

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Handle: RePEc:bla:coecpo:v:21:y:2003:i:1:p:41-58

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  1. Miller, Stephen M., 1986. "Financial innovation, depository-institution deregulation, and the demand for money," Journal of Macroeconomics, Elsevier, Elsevier, vol. 8(3), pages 279-296.
  2. Alan Sutherland, . "Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?," Discussion Papers, Department of Economics, University of York 95/17, Department of Economics, University of York.
  3. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 971-87, December.
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  9. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122 National Bureau of Economic Research, Inc.
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Cited by:
  1. Luca Agnello & Vitor Castro & Ricardo M. Sousa, 2013. "Are There Change-Points in the Likelihood of a Fiscal Consolidation Ending?," GEMF Working Papers 2013-06, GEMF - Faculdade de Economia, Universidade de Coimbra.
  2. Antonio Afonso, 2010. "Expansionary fiscal consolidations in Europe: new evidence," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(2), pages 105-109.
  3. Luca Agnello & Ricardo M. Sousa, 2011. "Fiscal Consolidation and Income Inequality," NIPE Working Papers, NIPE - Universidade do Minho 34/2011, NIPE - Universidade do Minho.
  4. L, Agnello. & R, M. Sousa., 2012. "How does Fiscal Consolidation Impact on Income Inequality?," Working papers, Banque de France 382, Banque de France.
  5. Maria Neicheva, 2006. "Non-Keynesian Effects of Government Expenditure on Output in Bulgaria: An HP Filter Approach," Post-Communist Economies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(1), pages 1-12.
  6. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta & Charl Jooste & Stephen M. Miller & Zeynel A. Ozdemir, 2012. "Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience," Working Papers 201228, University of Pretoria, Department of Economics.
  7. Anton Burger & Martin Zagler, 2007. "Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity," Department of Economics Working Papers wuwp095, Vienna University of Economics, Department of Economics.
  8. António Afonso, 2007. "Expansionary fiscal consolidations in Europe: part of conventional wisdom?," Money Macro and Finance (MMF) Research Group Conference 2006, Money Macro and Finance Research Group 50, Money Macro and Finance Research Group.
  9. António Afonso, 2001. "Non-Keynesian Effects of Fiscal Policy in the EU-15," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2001/07, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.

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