Fiscal Policy in Good and Bad Times
AbstractUsing a Threshold Vector Autoregression framework identified via sign restrictions, we answer three questions: First, are fiscal policy shocks regime-dependent? Second, which variables are governing the regime? Third, what are the effects of fiscal policies on the main macroeconomic variables in each of these states? The linearity hypothesis is strongly rejected, with the two detected regimes clearly identifiable as recession and boom phases. We find that fiscal policy shocks have a stronger impact in times of economic stress than in times of expansion, and that direct spending policies are more efficient than tax-cut policies in stabilizing the economy in the short-run.
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Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 001.
Date of creation: 2011
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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
monetary economics ;
Other versions of this item:
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-16 (All new papers)
- NEP-MAC-2011-01-16 (Macroeconomics)
- NEP-PBE-2011-01-16 (Public Economics)
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