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Liability-Creating versus Non-liability-Creating Fiscal Stabilisation Policies: Ricardian Equivalence, Fiscal Stabilisation, and EMU

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  • Bayoumi, Tamim
  • Masson, Paul R

Abstract

This paper looks at theoretical and empirical issues associated with the operation of fiscal stabilizers within an economy. It argues that such stabilizers operate most effectively at a national, rather than local, level. As differing cycles across regions tend to offset each other for the country as a whole, national fiscal stabilizers are not associated with the same increase in future tax liabilities for the region as local ones. Accordingly, the negative impact from the Ricardian effects associated with these tax liabilities is smaller. Empirical work on data across Canadian provinces indicates that local stabilizers are only 1/3 to 1/2 as effective as national stabilizers which create no future tax liability.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 108 (1998)
Issue (Month): 449 (July)
Pages: 1026-45

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Handle: RePEc:ecj:econjl:v:108:y:1998:i:449:p:1026-45

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Cited by:
  1. Fatás, Antonio & Mihov, Ilian, 1999. "Government Size and Automatic Stabilizers: International and Intranational Evidence," CEPR Discussion Papers 2259, C.E.P.R. Discussion Papers.
  2. Gianluigi Giorgioni & Ken Holden, 2003. "Ricardian equivalence, expansionary fiscal contraction and the stock market: a VECM approach," Applied Economics, Taylor & Francis Journals, vol. 35(12), pages 1435-1443.
  3. Peter B. Kenen, 2000. "Currency areas, policy domains, and the institutionalization of fixed exchange rates," LSE Research Online Documents on Economics 20170, London School of Economics and Political Science, LSE Library.
  4. Jha, Raghbendra, 2001. "Macroeconomics of Fiscal Policy in Developing Countries," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. Thomas Uril, 2001. "Avoiding excessive deficits with fiscal coordination light," Intereconomics: Review of European Economic Policy, Springer, vol. 36(6), pages 281-285, November.
  6. Casimir Dadak, 2011. "Political Economy of the Euro Area Crisis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(5), pages 593-604, December.
  7. Fritz Breuss, 2012. "Towards a New EMU," WIFO Working Papers 447, WIFO.
  8. Alberto Majocchi, 2008. "Theories of fiscal federalism and the European experience," ISAE Working Papers 100, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
  9. Wagner, Gary A., 2003. "Are state budget stabilization funds only the illusion of savings?: Evidence from stationary panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 213-238.
  10. Pierfederico Asdrubali & Soyoung Kim, 2007. "The Economic Effects of the EU Budget: A VAR Analysis," Discussion Paper Series 0722, Institute of Economic Research, Korea University.
  11. Gonzalez, Christian Y. & Rosenblatt, David & Webb, Steven B., 2002. "Stabilizing intergovernmental transfers in Latin America : a complement to national/subnational fiscal rules?," Policy Research Working Paper Series 2869, The World Bank.
  12. Muhammad Afzal, 2012. "Ricardian equivalence hypothesis: Evidence from Pakistan," E3 Journal of Business Management and Economics., E3 Journals, vol. 3(6), pages 258-265.

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