Boosting confidence: Is there a role for fiscal policy?
AbstractThis paper investigates the widely held view that expansionary fiscal policy can boost consumer and business confidence, which will stimulate private spending and sustain economic activity. We find evidence in favor of this conjecture, i.e., cuts in direct taxes generate a positive effect on consumer and business confidence, while the same applies in cases of higher non-wage government consumption. However, higher government wage bills and government investment reduce confidence, with the effect being more pronounced when the Debt to GDP ratio is high, possibly because they entail a permanent increase in the size of the public sector, which would have to be financed by higher future taxes.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 28 (2011)
Issue (Month): 4 (July)
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Web page: http://www.elsevier.com/locate/inca/30411
Fiscal policy Consumer confidence Business confidence Fiscal stimulus of confidence;
Other versions of this item:
- Panagiotis Konstantinou & Athanasios Tagkalakis, 2011. "Boosting Confidence: Is there a Role for Fiscal Policy?," Discussion Paper Series 2011_03, Department of Economics, University of Macedonia, revised Mar 2011.
- Panagiotis Konstantinou & Athanasios Tagkalakis, 2010. "Boosting confidence: is there a role for fiscal policy?," Working Papers 113, Bank of Greece.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
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