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Effects of discretionary fiscal policy: new empirical evidence for Germany

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  • Bank, Alexander
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    Abstract

    This paper analyses the effects of discretionary fiscal policy by presenting new empirical evidence for Germany within a structural vector autoregression (SVAR) framework. Following Blanchard and Perotti (2002), the SVAR model is identified by applying institutional information. We find no compelling evidence for the effectiveness of discretionary fiscal policy. Cutting taxes does not tend to stabilise the business cycle. Increasing government expenditure has an ambiguous effect on GDP for the basic specification. However, by controlling for the influence of inflation, higher government expenditure does not either tend to stabilise economic activity. The results are robust to various modifications.

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    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-470.pdf
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    Bibliographic Info

    Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-470.

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    Length: 25 pages
    Date of creation: Mar 2011
    Date of revision:
    Handle: RePEc:han:dpaper:dp-470

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    Keywords: Discretionary fiscal policy; Germany; structural vector autoregression;

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