Advanced Search
MyIDEAS: Login

Fiscal policy and growth

Contents:

Author Info

  • Dong Fu
  • Lori L. Taylor
  • Mine K. Yücel
Registered author(s):

    Abstract

    In the literature neither taxes, government spending nor deficits are robustly correlated with economic growth when evaluated individually. The lack of correlation may arise from the inability of any single budgetary component to fully capture the stance of fiscal policy. We use pair-wise combinations of fiscal indicators to assess the relationship between fiscal policy and U.S. growth. ; We develop a VAR methodology for evaluating simultaneous shocks to more than one variable and use it to examine the impulse responses for simultaneous, unexpected and equivalent structural shocks to pair-wise combinations of fiscal indicators. We also exploit the identity relationship between taxes, spending and deficits and follow Sims and Zha (1998) to evaluate an unexpected structural shock to one included fiscal indicator, holding constant the other included indicator. We find that an increase in the size of federal government leads to slower economic growth, that the deficit is an unreliable indicator of the stance of fiscal policy, and that tax revenues are the most consistent indicator of fiscal policy.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.dallasfed.org/assets/documents/research/papers/2003/wp0301.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 0301.

    as in new window
    Length:
    Date of creation: 2003
    Date of revision:
    Handle: RePEc:fip:feddwp:03-01

    Contact details of provider:
    Email:
    Web page: http://www.dallasfed.org/
    More information through EDIRC

    Order Information:
    Email:

    Related research

    Keywords: Taxation;

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. 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.
    2. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    3. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
    4. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
    5. Ben S. Bernanke & Ilian Mihov, 1995. "Measuring monetary policy," Working Papers in Applied Economic Theory 95-09, Federal Reserve Bank of San Francisco.
    6. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    7. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-50, June.
    8. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 1999. "Fiscal Policy, Profits, and Investment," NBER Working Papers 7207, National Bureau of Economic Research, Inc.
    9. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
    10. Christopher A. Sims & Tao Zha, 1995. "Error bands for impulse responses," Working Paper 95-6, Federal Reserve Bank of Atlanta.
    11. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November.
    12. Vito Tanzi & Howell H. Zee, 1996. "Fiscal Policy and Long-Run Growth," IMF Working Papers 96/119, International Monetary Fund.
    13. Robert J. Barro, 1976. "Unanticipated Money Growth and Unemployment in the United States," Working Papers 234, Queen's University, Department of Economics.
    14. Martin, Ricardo & Fardmanesh, Mohsen, 1990. " Fiscal Variables and Growth: A Cross-Sectional Analysis," Public Choice, Springer, vol. 64(3), pages 239-51, March.
    15. Barro, Robert J, 1978. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 549-80, August.
    16. Engen, Eric M. & Skinner, Jonathan, 1996. "Taxation and Economic Growth," National Tax Journal, National Tax Association, vol. 49(4), pages 617-42, December.
    17. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, December.
    18. Kocherlakota, Narayana R & Yi, Kei-Mu, 1997. "Is There Endogenous Long-Run Growth? Evidence from the United States and the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 235-62, May.
    19. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:feddwp:03-01. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Delia Rodriguez).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.