Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Effects of Discretionary Fiscal Policy on Macroeconomic Aggregates: A Reappraisal

Contents:

Author Info

  • Hebous, Shafik

Abstract

Fiscal stimuli to recover? A cascade of academic and layman-articles debate the effectiveness of fiscal policy in stimulating the economy backed up by different economic models and empirical support. This essay surveys the theoretical predictions and recent empirical Vector Autoregression (VAR) evidence on the short-run effects of discretionary fiscal policy on macroeconomic aggregates.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/23300/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23300.

as in new window
Length:
Date of creation: Jul 2009
Date of revision: Jun 2010
Handle: RePEc:pra:mprapa:23300

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Macroeconomic Policy; Fiscal Policy; Multipliers; Fiscal Stimulus; VAR;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jordi Galí & J. David López-Salido, 2003. "Understanding the Effects of Government Spending on Consumption," Working Papers 73, Barcelona Graduate School of Economics.
  2. Hafedh Bouakez & Nooman Rebei, 2003. "Why Does Private Consumption Rise After a Government Spending Shock?," Working Papers, Bank of Canada 03-43, Bank of Canada.
  3. Bilbiie, Florin O. & Meier, André & Müller, Gernot J., 2006. "What accounts for the changes in U.S. fiscal policy transmission?," Working Paper Series, European Central Bank 0582, European Central Bank.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  5. Sergio Rebelo, 2005. "Real Business Cycle Models: Past, Present and Future," RCER Working Papers 522, University of Rochester - Center for Economic Research (RCER).
  6. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
  7. Mankiw, N. Gregory & Weinzierl, Matthew, 2006. "Dynamic scoring: A back-of-the-envelope guide," Journal of Public Economics, Elsevier, Elsevier, vol. 90(8-9), pages 1415-1433, September.
  8. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7236, C.E.P.R. Discussion Papers.
  9. 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.
  10. Eric M. Leeper & Shu-Chun Susan Yang, 2006. "Dynamic Scoring: Alternative Financing Schemes," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2006-022, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  11. Mertens, Karel & Ravn, Morten O., 2009. "Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy Shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7505, C.E.P.R. Discussion Papers.
  12. Lorenzo Forni & Libero Monteforte & Luca Sessa, 2007. "The general equilibrium effects of fiscal policy: estimates for the euro area," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 652, Bank of Italy, Economic Research and International Relations Area.
  13. Adam, Klaus & Billi, Roberto M., 2006. "Monetary conservatism and fiscal policy," Working Paper Series, European Central Bank 0663, European Central Bank.
  14. Müller, Gernot J., 2008. "Understanding the dynamic effects of government spending on foreign trade," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(3), pages 345-371, April.
  15. Florin O. Bilbiie, 2009. "Nonseparable Preferences, Fiscal Policy Puzzles, and Inferior Goods," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(2-3), pages 443-450, 03.
  16. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series, European Central Bank 0877, European Central Bank.
  17. Jordi Gali & Tommaso Monacelli, 2005. "Optimal Monetary and Fiscal Policy in a Currency Union," NBER Working Papers 11815, National Bureau of Economic Research, Inc.
  18. M. Hashem Pesaran & Til Schuermann & Scott M. Weiner, 2001. "Modelling regional interdependencies using a global error-correcting macroeconometric model," 10th International Conference on Panel Data, Berlin, July 5-6, 2002, International Conferences on Panel Data B4-1, International Conferences on Panel Data.
  19. Corsetti, Giancarlo & Meier, André & Müller, Gernot, 2009. "Fiscal Stimulus with spending reversals," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7302, C.E.P.R. Discussion Papers.
  20. Henry, Jerome & Hernandez de Cos, Pablo & Momigliano, Sandro, 2008. "The impact of government budgets on prices: Evidence from macroeconometric models," Journal of Policy Modeling, Elsevier, Elsevier, vol. 30(1), pages 123-143.
  21. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  22. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1131, C.E.P.R. Discussion Papers.
  23. Carlo Favero & Francesco Giavazzi, 2007. "Debt and the effects of fiscal policy," Working Papers 317, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  24. Evi Pappa, 2009. "The effects of fiscal expansions: an international comparison," Working Papers 409, Barcelona Graduate School of Economics.
  25. Perotti, Roberto, 2005. "Estimating the Effects of Fiscal Policy in OECD Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4842, C.E.P.R. Discussion Papers.
  26. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2137, C.E.P.R. Discussion Papers.
  27. Selma Mahfouz & Richard Hemming & Michael Kell, 2002. "The Effectiveness of Fiscal Policy in Stimulating Economic Activity," IMF Working Papers 02/208, International Monetary Fund.
  28. Soyoung Kim & Nouriel Roubini, 2004. "Twin Deficit or Twin Divergence? Fiscal Policy, Current Account, and Real Exchange Rate in the US," Econometric Society 2004 North American Winter Meetings, Econometric Society 271, Econometric Society.
  29. Farmer, Roger E.A., 2010. "How to reduce unemployment: A new policy proposal," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(5), pages 557-572, July.
  30. Morten O. Ravn & Stephanie Schmitt-Grohe & Martin Uribe, 2007. "Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate," Economics Working Papers, European University Institute ECO2007/23, European University Institute.
  31. Hess Chung & Eric M. Leeper, 2007. "What Has Financed Government Debt?," NBER Working Papers 13425, National Bureau of Economic Research, Inc.
  32. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(4), pages 101-115, Fall.
  33. Morten O. Ravn & Stephanie Schmitt-Grohe, 2004. "Deep Habits," 2004 Meeting Papers, Society for Economic Dynamics 208, Society for Economic Dynamics.
  34. Alan Sutherland, . "Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?," Discussion Papers, Department of Economics, University of York 95/17, Department of Economics, University of York.
  35. Carlo Favero & Francesco Giavazzi, 2009. "How large are the effects of tax changes?," NBER Working Papers 15303, National Bureau of Economic Research, Inc.
  36. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  37. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
  38. Ferrero, Andrea, 2005. "Fiscal and monetary rules for a currency union," Working Paper Series, European Central Bank 0502, European Central Bank.
  39. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, American Economic Association, vol. 90(2), pages 120-125, May.
  40. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  41. Barry, Frank & Devereux, Michael B., 2003. "Expansionary fiscal contraction: A theoretical exploration," Journal of Macroeconomics, Elsevier, Elsevier, vol. 25(1), pages 1-23, March.
  42. Evi Pappa, 2009. "The Effects Of Fiscal Shocks On Employment And The Real Wage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 217-244, 02.
  43. Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(4), pages 858-885, 06.
  44. Uctum, Merih & Wickens, Michael R, 1997. "Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1612, C.E.P.R. Discussion Papers.
  45. Beetsma, Roel & Giuliodori, Massimo & Klaassen, Franc, 2005. "Trade Spillovers of Fiscal Policy in the European Union: A Panel Analysis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5222, C.E.P.R. Discussion Papers.
  46. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2760, C.E.P.R. Discussion Papers.
  47. Raffaela Giordano & Sandro Momigliano & Stefano Neri & Roberto Perotti, 2008. "The effetcs of fiscal policy in Italy: Evidence from a VAR model," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 656, Bank of Italy, Economic Research and International Relations Area.
  48. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2010. "Cross-Border Spillovers from Fiscal Stimulus," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 6(1), pages 5-37, March.
  49. Günter Coenen & Roland Straub, 2005. "Does Government Spending Crowd in Private Consumption? Theory and Empirical Evidence for the Euro Area," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 8(3), pages 435-470, December.
  50. Alan J. Auerbach & Daniel Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," NBER Working Papers 7662, National Bureau of Economic Research, Inc.
  51. Lane, Philip R. & Perotti, Roberto, 1998. "The trade balance and fiscal policy in the OECD," European Economic Review, Elsevier, Elsevier, vol. 42(3-5), pages 887-895, May.
  52. Ganelli, Giovanni, 2003. "The New Open Economy Macroeconomics of Government Debt," Royal Economic Society Annual Conference 2003, Royal Economic Society 83, Royal Economic Society.
  53. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, American Economic Association, vol. 100(3), pages 763-801, June.
  54. Craig Burnside & Martin Eichenbaum & Jonas Fisher, 2003. "Fiscal Shocks and Their Consequences," NBER Working Papers 9772, National Bureau of Economic Research, Inc.
  55. Tenhofen, Jörn & Wolff, Guntram B., 2007. "Does anticipation of government spending matter? Evidence from an expectation augmented VAR," Discussion Paper Series 1: Economic Studies 2007,14, Deutsche Bundesbank, Research Centre.
  56. 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.
  57. Giancarlo Corsetti & Gernot J. Müller, 2006. "Twin deficits: squaring theory, evidence and common sense," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 21(48), pages 597-638, October.
  58. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(3), pages 21-36, Summer.
  59. Beetsma, Roel M.W.J. & Jensen, Henrik, 2005. "Monetary and fiscal policy interactions in a micro-founded model of a monetary union," Journal of International Economics, Elsevier, Elsevier, vol. 67(2), pages 320-352, December.
  60. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2008. "The Effects of Public Spending Shocks on Trade Balances and Budget Deficits in the European Union," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(2-3), pages 414-423, 04-05.
  61. Tobias Cwik & Volker Wieland, 2011. "Keynesian government spending multipliers and spillovers in the euro area," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 26(67), pages 493-549, 07.
  62. Tommaso Monacelli & Roberto Perotti, 2008. "Openness and the Sectoral Effects of Fiscal Policy," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(2-3), pages 395-403, 04-05.
  63. Linnemann, Ludger & Schabert, Andreas, 2003. " Fiscal Policy in the New Neoclassical Synthesis," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(6), pages 911-29, December.
  64. Renee Fry & Adrian Pagan, 2007. "Some Issues in Using Sign Restrictions for Identifying Structural VARs," NCER Working Paper Series, National Centre for Econometric Research 14, National Centre for Econometric Research.
  65. 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.
  66. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, Econometric Society, vol. 48(1), pages 1-48, January.
  67. Riccardo Faini, 2006. "Fiscal policy and interest rates in Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 21(47), pages 443-489, 07.
  68. K. Arin & Faik Koray, 2006. "Are some taxes different than others? An empirical investigation of the effects of tax policy in Canada," Empirical Economics, Springer, Springer, vol. 31(1), pages 183-193, March.
  69. Giovanni Ganelli, 2007. "The Effects Of Fiscal Shocks On Consumption: Reconciling Theory And Data," Manchester School, University of Manchester, vol. 75(2), pages 193-209, 03.
  70. Jörn Tenhofen & Guntram B. Wolff & Kirsten H. Heppke-Falk, 2010. "The Macroeconomic Effects of Exogenous Fiscal Policy Shocks in Germany: A Disaggregated SVAR Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(3), pages 328-355, June.
  71. Paustian Matthias, 2007. "Assessing Sign Restrictions," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 7(1), pages 1-33, August.
  72. Alan J. Auerbach, 2009. "Long-Term Objectives for Government Debt," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 65(4), pages 472-501, December.
  73. de Castro, Francisco & Hernández de Cos, Pablo, 2008. "The economic effects of fiscal policy: The case of Spain," Journal of Macroeconomics, Elsevier, Elsevier, vol. 30(3), pages 1005-1028, September.
  74. Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Expansionary Fiscal Shocks and the US Trade Deficit," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 8(3), pages 363-397, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:23300. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.