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An empirical investigation of fiscal policy in New Zealand

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  • Iris Claus
  • Aaron Gill
  • Boram Lee
  • Nathan McLellan

    ()
    (The Treasury)

Abstract

This paper examines the effects of fiscal policy, measured by changes in government spending and net tax (government tax revenue less transfer payments), on New Zealand GDP. The framework of analysis is a structural vector autoregression (VAR) model of the New Zealand economy, employing and extending estimation techniques used by Blanchard and Perotti (2002). This model is then used to examine the dynamic effects of changes in government spending, taxes and transfers on GDP and the contributions of discretionary fiscal policy to New Zealand business cycles.

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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2006/06-08/twp06-08.pdf
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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 06/08.

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Length: 42
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:nzt:nztwps:06/08

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Phone: +64-4-472 2733
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Web page: http://www.treasury.govt.nz
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Keywords: Fiscal policy; business cycle fluctuations; vector autoregression;

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References

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  1. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(4), pages 1329-1368, November.
  2. Robert Buckle & Kunhong Kim & Julie Tam, 2002. "A structural var approach to estimating budget balance targets," New Zealand Economic Papers, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(2), pages 149-175.
  3. Renee Philip & John Janssen, 2002. "Indicators of Fiscal Impulse for New Zealand," Treasury Working Paper Series, New Zealand Treasury 02/30, New Zealand Treasury.
  4. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, American Economic Association, vol. 82(4), pages 901-21, September.
  5. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, Elsevier, vol. 74(2), pages 171-190, November.
  7. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  8. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers, OECD Publishing 434, OECD Publishing.
  9. Anne-Marie Brook, 2003. "Recent and Prospective Trends in Real Long-Term Interest Rates: Fiscal Policy and other Drivers," OECD Economics Department Working Papers, OECD Publishing 367, OECD Publishing.
  10. Blinder, Alan S, 1981. "Temporary Income Taxes and Consumer Spending," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(1), pages 26-53, February.
  11. Li Wenli & Pierre -Daniel Sarte, 2004. "Progressive Taxation and Long-Run Growth," American Economic Review, American Economic Association, American Economic Association, vol. 94(5), pages 1705-1716, December.
  12. Valerie A. Ramey & Matthew D. Shapiro, 1999. "Costly Capital Reallocation and the Effects of Government Spending," NBER Working Papers 6283, National Bureau of Economic Research, Inc.
  13. Robert A Buckle & Kunhong Kim & Heather Kirkham & Nathan McLellan & Jared Sharma, 2002. "A structural VAR model of the New Zealand business cycle," Treasury Working Paper Series, New Zealand Treasury 02/26, New Zealand Treasury.
  14. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, Elsevier, vol. 14(4), pages 517-533, August.
  15. Dungey, Mardi & Pagan, Adrian, 2000. "A Structural VAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 76(235), pages 321-42, December.
  16. Widmalm, Frida, 2001. " Tax Structure and Growth: Are Some Taxes Better Than Others?," Public Choice, Springer, Springer, vol. 107(3-4), pages 199-219, June.
  17. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, Econometric Society, vol. 48(1), pages 1-48, January.
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Citations

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Cited by:
  1. Saten Kumar & Don J. Webber & Scott Fargher, 2012. "Wagner's Law revisited: cointegration and causality tests for New Zealand," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 44(5), pages 607-616, February.
  2. Oscar Parkyn & Tugrul Vehbi, 2013. "The Effects of Fiscal Policy in New Zealand: Evidence from a VAR Model with Debt Constraints," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2013-04, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Shahid Ali & Naved Ahmad, 2010. "The Effects of Fiscal Policy on Economic Growth: Empirical Evidences Based on Time Series Data from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 49(4), pages 497–512.
  4. Norman Gemmell & Richard Kneller & Ismael Sanz, 2011. "The Timing and Persistence of Fiscal Policy Impacts on Growth: Evidence from OECD Countries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(550), pages F33-F58, February.
  5. Dungey, Mardi & Fry, Renée, 2009. "The identification of fiscal and monetary policy in a structural VAR," Economic Modelling, Elsevier, Elsevier, vol. 26(6), pages 1147-1160, November.
  6. Razzak, Weshah, 2013. "An Empirical Study of Sectoral-Level Capital Investments in New Zealand," MPRA Paper 52461, University Library of Munich, Germany.
  7. Buckle, Robert A. & Kim, Kunhong & Kirkham, Heather & McLellan, Nathan & Sharma, Jarad, 2007. "A structural VAR business cycle model for a volatile small open economy," Economic Modelling, Elsevier, Elsevier, vol. 24(6), pages 990-1017, November.
  8. David Fielding, 2011. "New Zealand: The Last Bastion of Textbook Open-Economy Macroeconomics," Working Papers, University of Otago, Department of Economics 1105, University of Otago, Department of Economics, revised Jun 2011.
  9. McKelvie, S. & Hall, Viv B., 2012. "Stylised facts for New Zealand business cycles: A post-1987 perspective," Working Paper Series, Victoria University of Wellington, School of Economics and Finance 2364, Victoria University of Wellington, School of Economics and Finance.

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