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Fiscal Stabilization Policy and Fiscal Institutions

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  • Campbell Leith
  • Simon Wren-Lewis

Abstract

In this paper we analyse counter-cyclical fiscal policy within the context of a microfounded analysis of business-cycle stabilization. We show that tax and spending instruments can have a useful counter-cyclical role, even after allowing for the distortionary nature of the instruments and the need for debt sustainability. A critical barrier to the use of fiscal instruments may be political economy concerns, and we survey recent suggestions involving alternative fiscal policy institutions. Copyright 2005, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 21 (2005)
Issue (Month): 4 (Winter)
Pages: 584-597

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Handle: RePEc:oup:oxford:v:21:y:2005:i:4:p:584-597

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References

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  1. Benigno, Pierpaolo & Woodford, Michael, 2004. "Optimal monetary and fiscal policy: a linear-quadratic approach," Working Paper Series, European Central Bank 0345, European Central Bank.
  2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(1), pages 101-121.
  3. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
  4. Charles Wyplosz, 2002. "Fiscal Policy: Institutions vs. Rules," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 03-2002, Economics Section, The Graduate Institute of International Studies.
  5. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  6. John Muellbauer, 2005. "Property Taxation and the Economy after the Barker Review," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(502), pages C99-C117, 03.
  7. Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Optimal simple and implementable monetary and fiscal rules," Working Paper, Federal Reserve Bank of Atlanta 2007-24, Federal Reserve Bank of Atlanta.
  8. Campbell leith & Jim Malley, 2002. "Estimated General Equilibrium Models for the Evaluation of Monetary Policy in the US and Europe," Working Papers, Business School - Economics, University of Glasgow 2001_16, Business School - Economics, University of Glasgow.
  9. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 27(1), pages 129-147, February.
  10. Wyplosz, Charles, 2002. "Fiscal Policy: Institutions versus Rules," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3238, C.E.P.R. Discussion Papers.
  11. Buti,Marco (ed.), 2003. "Monetary and Fiscal Policies in EMU," Cambridge Books, Cambridge University Press, number 9780521832151, 9.
  12. Kirsanova, Tatiana & Vines, David & Wren-Lewis, Simon, 2006. "Fiscal Policy and Macroeconomic Stability Within a Currency Union," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5584, C.E.P.R. Discussion Papers.
  13. Dixit, Avinash & Lambertini, Luisa, 2003. "Symbiosis of monetary and fiscal policies in a monetary union," Journal of International Economics, Elsevier, vol. 60(2), pages 235-247, August.
  14. Jón Steinsson, 2000. "Optimal monetary policy in an economy with inflation persistence," Economics wp11, Department of Economics, Central bank of Iceland.
  15. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  17. Simon Wren-Lewis, 2003. "Changing the Rules," New Economy, Institute for Public Policy Research, vol. 10(2), pages 73-78, 06.
  18. Leith, Campbell & Wren-Lewis, Simon, 2000. "Interactions between Monetary and Fiscal Policy Rules," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(462), pages C93-108, March.
  19. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  20. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(2), pages 241-54, April.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Some Thoughts on Fiscal Rules
    by Mainly Macro in Mainly Macro on 2012-12-09 23:41:00
  2. The UK is well ahead of the US and the EU in its use of fiscal rules
    by Managing Editor in British Politics and Policy at LSE on 2012-12-11 08:00:52
  3. The UK is well ahead of the US and the EU in its use of fiscal rules.
    by Blog Admin in EUROPP European Politics and Policy on 2012-12-15 11:00:38
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Cited by:
  1. Truong Nguyen, 2013. "Estimating India's Fiscal Reaction Function," ASARC Working Papers, The Australian National University, Australia South Asia Research Centre 2013-05, The Australian National University, Australia South Asia Research Centre.
  2. Philip Arestis, 2011. "Fiscal Policy Is Still an Effective Instrument of Macroeconomic Policy," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(2), pages 143-156, June.
  3. Felicity C Barker & Robert A Buckle & Robert W St Clair, 2008. "Roles of Fiscal Policy in New Zealand," Treasury Working Paper Series 08/02, New Zealand Treasury.

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