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On the Effects of Fiscal Policies in Portugal

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  • Alfredo M. Pereira

    () (Department of Economics, College of William and Mary)

  • Oriol Roca Sagales

    () (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)

Abstract

This paper estimates the long-term effects on output of different fiscal policies in Portugal in the context of unrestricted VAR models that include several public spending and taxation variables. Empirical results suggest that the effects of fiscal policies are within the Keynesian paradigm for public transfers, public consumption, public investment and direct taxation, with public investment showing particularly strong positive effects and direct taxation showing particularly strong negative effects. In turn, non-Keynesian effects dominate in the case of public wages where cuts are expansionary and indirect taxation where raises are neutral. Accordingly, cuts in public wages and raises in indirect taxations are the two most desirable instruments for fiscal consolidation in Portugal. Finally, deficit-neutral policies that offset raises in public transfers, public consumption, and public investment, with raises in indirect taxes have long-term positive effects on output. The same is true for cuts in direct taxation offset with cuts in all forms of public spending except for public investment.

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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 35.

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Length: 14 pages
Date of creation: 22 Jul 2006
Date of revision:
Handle: RePEc:cwm:wpaper:35

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Related research

Keywords: policy; budgetary restraint; fiscal consolidation;

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References

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  1. Giavazzi, Francesco & Pagano, Marco, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," CEPR Discussion Papers 417, C.E.P.R. Discussion Papers.
  2. repec:fth:eeccco:148 is not listed on IDEAS
  3. Giavazzi, Francesco & Pagano, Marco, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," CEPR Discussion Papers 1284, C.E.P.R. Discussion Papers.
  4. Christophe Kamps, 2004. "The Dynamic Effects of Public Capital: VAR Evidence for 22 OECD Countries," Kiel Working Papers 1224, Kiel Institute for the World Economy.
  5. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November.
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Cited by:
  1. Yadav, Swati & Upadhyaya, V & Sharma, Seema, 2010. "Impact of fiscal policy shocks on the Indian economy," MPRA Paper 34071, University Library of Munich, Germany.

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