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Fundamental Determinants of the Effects of Fiscal Policy

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  • Manmohan S. Kumar
  • Dennis P. J. Botman
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    Abstract

    We explore the underlying determinants of the macroeconomic effects of fiscal policy and tax and social security reform using the Global Fiscal Model (GFM). We show that the planning horizon of consumers, access to financial markets, and the elasticity of labor supply, as well as the characteristics of utility and production functions, and the degree of competition are all critical for determining the impact of fiscal policy. Four topical fiscal policy issues, for a representative large and small economy, are examined: the effects of changes in government debt; higher government spending; tax reform; and privatization of retirement savings.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/72.

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    Length: 46
    Date of creation: 01 Mar 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/72

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    Related research

    Keywords: Public debt; Government expenditures; Tax reforms; Privatization; Economic models; government spending; taxation; labor income; fiscal policy; private consumption; real interest rate; tax reform; fiscal consolidation; capital accumulation; tax policy; disposable income; consumption over time; government spending shocks; tax cut; fiscal adjustment; national saving; aggregate demand; fiscal model; fiscal policies; tax rates; capital income; increase in consumption; government revenue; fiscal expansion; tax burden; tax base; general equilibrium; fiscal stimulus; consumption increases; consumption goods; fiscal deficits; consumption declines; fiscal loosening; temporary tax; temporary tax cut; expansionary fiscal; consumption decline; tax system; fiscal contraction; consumer behavior; fiscal policy on consumption; tax reduction; national income; national savings; consumption tax; fiscal affairs department; tax bases; government deficit; fiscal structure; tax revenue; fiscal affairs; consumption growth; expansionary fiscal policy; fiscal reform; aggregate consumption; fiscal shocks; consumption needs; fiscal models; tax increase; permanent income; fiscal discipline;

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    References

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    2. Ghironi, Fabio & Iscan, Talan B. & Rebucci, Alessandro, 2008. "Net foreign asset positions and consumption dynamics in the international economy," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1337-1359, December.
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    14. Hamid Faruqee & Douglas Laxton & Steven Symansky, 1997. "Government Debt, Life-Cycle Income, and Liquidity Constraints: Beyond Approximate Ricardian Equivalence," IMF Staff Papers, Palgrave Macmillan, vol. 44(3), pages 374-382, September.
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    19. Dirk Muir & Douglas Laxton & Dennis P. J. Botman & Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 06/45, International Monetary Fund.
    20. Ganelli, Giovanni, 2005. "The new open economy macroeconomics of government debt," Journal of International Economics, Elsevier, vol. 65(1), pages 167-184, January.
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    23. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers 2760, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Agnello, Luca & Furceri, Davide & Sousa, Ricardo M., 2013. "How best to measure discretionary fiscal policy? Assessing its impact on private spending," Economic Modelling, Elsevier, vol. 34(C), pages 15-24.
    2. Sanjeev Gupta & Carlos Mulas-Granados & Emanuele Baldacci, 2009. "How Effective is Fiscal Policy Response in Systemic Banking Crises?," IMF Working Papers 09/160, International Monetary Fund.
    3. Botman, Dennis & Edison, Hali & N'Diaye, Papa, 2009. "Strategies for fiscal consolidation in Japan," Japan and the World Economy, Elsevier, vol. 21(2), pages 151-160, March.
    4. Leif Lybecker Eskesen, 2009. "Countering the Cycle," IMF Working Papers 09/249, International Monetary Fund.
    5. Guy Meredith, 2007. "Debt Dynamics and Global Imbalances," IMF Working Papers 07/4, International Monetary Fund.

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