In this paper, we study the effects of fiscal policy during different fiscal policy regimes. More specifically, we investigate how different factors, such as size, duration and composition of fiscal changes, can alter the effects of fiscal policy on private consumption. Using an unbalanced panel of 19 OECD countries during the period 1960-2000, we find that transfer changes are believed to be permanent during fiscal contractions. Hence, it is more likely that an expansionary fiscal contraction will occur if the government cuts transfers. Our results highlight the importance of accounting for specific circumstances, such as the debt and deficit position, when studying expansionary fiscal contractions. The results also indicate that expansionary fiscal contractions are likely to come at a considerable social cost.
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Paper provided by Lund University, Department of Economics in its series Working Papers with number
2004:12.
Length: 29 pages Date of creation: 25 Mar 2004 Date of revision: Handle: RePEc:hhs:lunewp:2004_012
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Find related papers by JEL classification: C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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