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Fiscal Policy Composition, Public Debt, and Economic Activity

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  • Ardagna, Silvia
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    Abstract

    This paper uses a dynamic general equilibrium model i) to investigate how changes to different spending and revenue items of the budget affect economic activity and public finance; and ii) to evaluate the welfare costs of alternative fiscal policy maneuvers. The paper shows that,unlike an increase in government purchases of final goods, an increase in public employment and transfers can have a contractionary effect on the economy in the same way as a rise in tax rates. It also suggests that fiscal adjustments implemented by cutting spending items increase households' welfare and are more effective in reducing the primary deficit and public debt than are increases in tax rates.

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    File URL: http://dash.harvard.edu/bitstream/handle/1/2579823/Ardagna_FiscalPolicy00.pdf
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    Bibliographic Info

    Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 2579823.

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    Date of creation: 2001
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    Publication status: Published in Public Choice
    Handle: RePEc:hrv:faseco:2579823

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    Cited by:
    1. Alper, C. Emre & Ardic, Oya Pinar & Mumcu, Ayse & Saglam, Ismail, 2008. "The welfare effects of government's preferences over spending and its financing," Economic Modelling, Elsevier, vol. 25(1), pages 1-12, January.
    2. Dimitris Papageorgiou, 2011. "Fiscal policy, economic activity and welfare: the case of Greece," Economics Bulletin, AccessEcon, vol. 31(3), pages 2629-2640.
    3. Michele P. Cavallo, 2005. "Government employment and the dynamic effects of fiscal policy shocks," Working Paper Series 2005-16, Federal Reserve Bank of San Francisco.
    4. Ardagna, Silvia, 2007. "Fiscal policy in unionized labor markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1498-1534, May.
    5. K. Peren Arin & Faik Koray, 2005. "Fiscal Policy And Economic Activity: Us Evidence," CAMA Working Papers 2005-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. Fernàndez-de-Córdoba, Gonzalo & Pérez, Javier J. & Torres, José L., 2009. "Public and private sector wages interactions in a general equilibrium model," Working Paper Series 1099, European Central Bank.
    7. Evi Pappa, 2005. "New-keynesian or RBC transmission? The effects of fiscal shocks in labour markets," LSE Research Online Documents on Economics 524, London School of Economics and Political Science, LSE Library.
    8. T. Buyse & F. Heylen, 2012. "Leaving the empirical (battle)ground: Output and welfare effects of fiscal consolidation in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/826, Ghent University, Faculty of Economics and Business Administration.
    9. Benedict J. Clements & Sanjeev Gupta & Emanuele Baldacci & Carlos Mulas-Granados, 2002. "Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries," IMF Working Papers 02/77, International Monetary Fund.
    10. Sebastian Gechert, 2013. "What fiscal policy is most effective? A Meta Regression Analysis," IMK Working Paper 117-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    11. Dimitris Papageorgiou, 2009. "Macroeconomic Implications of Alternative Tax Regimes: The Case of Greece," Working Papers 97, Bank of Greece.
    12. Papageorgiou, Dimitris, 2012. "Fiscal policy reforms in general equilibrium: The case of Greece," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 504-522.
    13. Sanjeev Gupta & Emanuele Baldacci & Benedict Clements & Erwin R. Tiongson, 2005. "What sustains fiscal consolidations in emerging market countries?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(4), pages 307-321.
    14. Sebastian Gechert & Henner Will, 2012. "Fiscal Multipliers: A Meta Regression Analysis," IMK Working Paper 97-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    15. Evi Pappa, 2005. "New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets," Working Papers 293, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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