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Automatic Fiscal Stabilisers: Implications for New Zealand

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  • Julie Tam
  • Heather Kirkham

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    Abstract

    Automatic fiscal stabilisers, or the cyclical components of the budget balance, are larger in New Zealand than in the average OECD country, reflecting both higher sensitivity to the conomic cycle, and a more volatile cycle. Fiscal vigilance is especially important in New Zealand. Large projected operating surpluses could easily disappear if lower economic outcomes are mistakenly assumed to be cyclical. But, automatic stabilisers are difficult to use in a policy framework as empirical estimates of the cyclical budget balance vary significantly. While the estimated trend in automatic stabilisers is broadly similar, the level varies significantly, such that at any point in time a 'structural surplus' may be dependant on the estimation method.

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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2001/01-10/twp01-10.pdf
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    Bibliographic Info

    Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 01/10.

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    Length: 25 pages
    Date of creation: 2000
    Date of revision: 2001
    Handle: RePEc:nzt:nztwps:01/10

    Note: An earlier draft of this paper was prepared by Julie Tam in 2000, and has been updated by Heather Kirkham.
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    Postal: New Zealand Treasury, PO Box 3724, Wellington, New Zealand
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    Related research

    Keywords: automatic fiscal stabilisers; economic cycle; cyclical budget balance; expenditure and tax elasticities;

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    References

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    1. Darrel Cohen & Glenn Follette, 1999. "The automatic fiscal stabilizers: quietly doing their thing," Finance and Economics Discussion Series 1999-64, Board of Governors of the Federal Reserve System (U.S.).
    2. Jean-Claude Chouraqui & Robert P. Hagemann & Nicola Sartor, 1990. "Indicators of Fiscal Policy: A Re-Examination," OECD Economics Department Working Papers 78, OECD Publishing.
    3. Guay, A & St-Amant, P, 1996. "Do Mechanical Filters Provide a Good Approximation of Business Cycles?," Technical Reports 78, Bank of Canada.
    4. Goff, Brian, 1998. " Persistence in Government Spending Fluctuations: New Evidence on the Displacement Effect," Public Choice, Springer, vol. 97(1-2), pages 141-57, October.
    5. Christina D. Romer, 1999. "Changes in Business Cycles: Evidence and Explanations," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 23-44, Spring.
    6. Karras, Georgios & Song, Frank, 1996. "Sources of business-cycle volatility: An exploratory study on a sample of OECD countries," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 621-637.
    7. Koehler, Anne & Diebold, Francis X. & Giogianni, Lorenzo & Inoue, Atsushi, 1996. "Software review," International Journal of Forecasting, Elsevier, vol. 12(2), pages 309-315, June.
    8. Pesaran, B. & Robinson, G. N., 1997. "Optimal funding rules," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 329-345.
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    Cited by:
    1. Renee Philip & John Janssen, 2002. "Indicators of Fiscal Impulse for New Zealand," Treasury Working Paper Series 02/30, New Zealand Treasury.
    2. John Janssen, 2001. "New Zealand's Fiscal Policy Framework: Experience and Evolution," Treasury Working Paper Series 01/25, New Zealand Treasury.
    3. Angela Barnes & Steve Leith, 2001. "Budget Management That Counts: Recent Approaches to Budget and Fiscal Management in New Zealand," Treasury Working Paper Series 01/24, New Zealand Treasury.

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