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Estimating the effects of fiscal policy in OECD countries

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  • Roberto Perotti

    (European University Institute and Centre for Economic Policy Research)

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    Abstract

    This paper studies the effects of fiscal policy on GDP, prices and interest rates in 5 OECD countries, using a structural Vector Autoregression approach. Its main results can be summarized as follows: 1) The estimated effects of fiscal policy on GDP tend to be small: positive government spending multipliers larger than 1 tend to be the exception; 2) The effects of fiscal policy on GDP and its components have become substantially weaker over time; 3) Under plausible values of the price elasticity, government spending has positive effects on the price level, although usually small; 4) Government spending shocks have significant effects on the nominal and real short interest rate, but of varying signs; 5) In the post-1980 period, net tax shocks have positive short run effects on the nominal interest rate, and typically negative or zero effects on prices; 6) The US is an outlier in many dimensions; responses to fiscal shocks estimated on US data are often not representative of the average OECD country included in this sample.

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    Bibliographic Info

    Paper provided by European Network of Economic Policy Research Institutes in its series Economics Working Papers with number 015.

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    Length: 55 pages
    Date of creation: Oct 2002
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    Handle: RePEc:epr:enepwp:015

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