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Should We Pay Attention to Indicators of Fiscal Impact on Demand?

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Signe Krogstrup () (IUHEI)

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Abstract

This paper looks at five different ways in which the effect of fiscal policy on aggregate demand in the short term can be empirically estimated, and asks two questions: First, given the assumption that fiscal policy has the same effect across countries, which of the five indicators is the empirically best measure of fiscal impact on demand? Second, is it reasonable to interpret fiscal policy indicators similarly across countries, or does the effect of fiscal policy on demand differ to a degree that makes this unreasonable? Running a panel regression of changes in aggregate demand on the five measures of fiscal policy in turn frpr OECD countries, the conclusion is that OECD's structural budget balance measure seems to be the more plausible measure of fiscal impact on demand. Moreover, testing the restriction that the five measures have identical parameters across OECD countries is rejected in five all cases.

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Paper provided by Economics Section, The Graduate Institute of International Studies in its series HEI Working Papers with number 01-2002.

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Length: 30
Date of creation: 01 Feb 2002
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Handle: RePEc:gii:giihei:heiwp01-2002

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Related research
Keywords: Fiscal policy; Fiscal indicators; Demand; Fiscal impulse; Structural budget balance; Fiscal Impact;

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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.:
  1. Garry J. Schinasi, 1986. "International comparisons of fiscal policy: the OECD and the IMF measures of fiscal impulse," International Finance Discussion Papers 274, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Christina D. Romer & David H. Romer, 1994. "What Ends Recessions?," NBER Working Papers 4765, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Christina D. Romer & David H. Romer, 1994. "What Ends Recessions?," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 13-80 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Braconier, Henrik & Holden, Steinar, 1999. "The Public Budget Balance - Fiscal Indicators and Cyclical Sensitivity in the Nordic Countries," Working Paper 67, National Institute of Economic Research. [Downloadable!]
  4. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD, Economics Department. [Downloadable!]
  5. Eisner, Robert, 1989. "Budget Deficits: Rhetoric and Reality," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 73-93, Spring. [Downloadable!] (restricted)
  6. George L. Perry & Charles L. Schultze, 1993. "Was This Recession Different? Are They All Different," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1993-1), pages 145-212. [Downloadable!]
  7. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD, Economics Department. [Downloadable!]
  8. Bruneau, C. & De Bandt, O., 1999. "Fiscal Policy in the Transition to Monetary Union: a Structural VAR Model," Documents de Travail 60, Banque de France. [Downloadable!]
  9. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Mark Scott Lutz & Garry J. Schinasi, 1991. "Fiscal Impulse," IMF Working Papers 91/91, International Monetary Fund.
  11. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD, Economics Department. [Downloadable!]
  12. Bhargava, A & Franzini, L & Narendranathan, W, 1982. "Serial Correlation and the Fixed Effects Model," Review of Economic Studies, Blackwell Publishing, vol. 49(4), pages 533-49, October. [Downloadable!] (restricted)
  13. Richard D. Haas & Peter S. Heller & Ahsan S. Mansur, 1986. "A Review of the Fiscal Impulse Measure," IMF Occasional Papers 44, International Monetary Fund.
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Cited by:
(explanations, 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.)

  1. Michael Kumhof & Douglas Laxton, 2009. "Simple, Implementable Fiscal Policy Rules," IMF Working Papers 09/76, International Monetary Fund. [Downloadable!]
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