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Effects of Fiscal Consolidation in the Czech Republic

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  • Stephen Snudden
  • Vladimir Klyuev

Abstract

This paper uses the IMF’s Global Integrated Monetary and Fiscal Model (GIMF) to assess the impact of fiscal consolidation on the Czech economy. Its contribution is threefold. First, it provides estimates of dynamic fiscal multipliers for a variety of fiscal instruments (tax and expenditure), consolidation durations, assumptions about credibility, and monetary policy responses. Second, the paper evaluates the impact on the economy of tightening measures envisaged in the 2011 budget. Third, the paper considers alternative packages for consolidation beyond 2011 to achieve the government’s balanced budget target by 2016 and identifies which forms of adjustment are more "growth-friendly".

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/65.

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Length: 65
Date of creation: 01 Mar 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/65

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Keywords: Fiscal consolidation; Fiscal policy; Budgets; fiscal rule; aggregate demand; labor income; consumption tax; fiscal multipliers; fiscal balance; capital income; consumption expenditure; fiscal instruments; fiscal instrument; real interest rate; fiscal authority; tax revenue; consumption goods; fiscal adjustment; consumption taxes; government spending; government expenditure; fiscal multiplier; general equilibrium; fiscal impulse; taxation; fiscal tightening; fiscal stimulus; government consumption expenditure; budget constraint; fiscal shock; private consumption; fiscal deficit; expenditure cuts; government deficit; fiscal deficits; taxes on labor; budget consolidation; consumption decision; capital expenditures; consumption tax revenue; increase in consumption; fiscal model; fiscal position; total consumption; marginal propensity to consume; reduction in consumption; investment spending; public debt; tax change; current income; demand for investment goods; account deficits; household budget; consumption spending; fiscal authorities; budget balances; national budget; private consumption expenditure; fiscal measures; fiscal accounts; fiscal implications; fiscal surplus; consumption remains; budget deficit; disposable income; fiscal policy rule; reduction in transfers; structural fiscal; lifetime income; business cycles; public finances; consumption behavior; fiscal analysis; fiscal shocks; budget balance; revenue adjustment; government budget; household income; fiscal policy rules; household consumption; gross domestic product; consumption expenditures; fiscal stimuli; tax income;

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References

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  1. Barrell, Ray & Dawn Holland & Nigel Pain, 2002. "An Econometric Macro-model of Transition: Policy Choices in the Pre-Accession Period," Royal Economic Society Annual Conference 2002 15, Royal Economic Society.
  2. Lawrence J. Christiano & Martin Eichenbaum & Sergio Rebelo, 2010. "When is the government spending multiplier large?," CQER Working Paper 2010-01, Federal Reserve Bank of Atlanta.
  3. Freedman, Charles & Kumhof, Michael & Laxton, Douglas & Muir, Dirk & Mursula, Susanna, 2010. "Global effects of fiscal stimulus during the crisis," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 506-526, July.
  4. Christophe Kamps, 2004. "New Estimates of Government Net Capital Stocks for 22 OECD Countries 1960-2001," IMF Working Papers 04/67, International Monetary Fund.
  5. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  6. Taylor, John B., 2010. "Comment on: "Global effects of fiscal stimulus during the crisis" by Charles Freedman, Michael Kumhof, Douglas Laxton, Dick Muir, Susanna Mursula," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 527-530, July.
  7. Douglas Laxton & Susanna Mursula & Michael Kumhof & Dirk Muir, 2010. "The Global Integrated Monetary and Fiscal Model (GIMF)," IMF Working Papers 10/34, International Monetary Fund.
  8. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
  9. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  10. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  11. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
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Citations

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Cited by:
  1. Robert Ambrisko & Vitezslav Augusta & Dana Hajkova & Petr Kral & Pavla Netusilova & Milan Rikovsky & Pavel Soukup, 2012. "Fiscal Discretion in the Czech Republic in 2001-2011: Has It Been Stabilizing?," Research and Policy Notes 2012/01, Czech National Bank, Research Department.
  2. Jan Hagemejer & Tomasz Jedrzejowicz & Zbigniew Zolkiewski, 2011. "Fiscal tightening after the crisis. A scenario analysis for Poland," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 42(3), pages 33-66.
  3. Michal Franta, 2012. "Macroeconomic Effects of Fiscal Policy in the Czech Republic: Evidence Based on Various Identification Approaches in a VAR Framework," Working Papers 2012/13, Czech National Bank, Research Department.
  4. Aleš Melecký & Martin Melecký, 2012. "The Impact of Macroeconomic Shocks on the Government Debt Dynamics: How Robust is the Fiscal Stance of the Czech Republic?," Politická ekonomie, University of Economics, Prague, vol. 2012(6), pages 723-742.
  5. Jaromir Benes & Andrew Berg & Rafael A Portillo & David Vavra, 2013. "Modeling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New-Keynesian Framework," IMF Working Papers 13/11, International Monetary Fund.
  6. Melecky, Ales & Melecky, Martin, 2012. "Vliv makroekonomických šoků na dynamiku vládního dluhu: jak robustní je fiskální pozice České republiky?
    [The Impact of Macroeconomic Shocks on the Government Debt Dynamics: How Robust is
    ," MPRA Paper 39761, University Library of Munich, Germany.
  7. Serbanoiu, Georgian Valentin, 2012. "Transmission of fiscal policy shocks into Romania's economy," MPRA Paper 40947, University Library of Munich, Germany.
  8. Robert Ambrisko & Jan Babecky & Jakub Rysanek & Vilem Valenta, 2012. "Assessing the Impact of Fiscal Measures on the Czech Economy," Working Papers 2012/15, Czech National Bank, Research Department.
  9. Dirk Muir & Anke Weber, 2013. "Fiscal Multipliers in Bulgaria," IMF Working Papers 13/49, International Monetary Fund.

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