Boosting cycles and Stabilization effects of Fiscal Rules
AbstractThe dynamic and the structure of the economy determine the effects of political economy shocks, fiscal and monetary policy. Based on a DSGE model and stylized facts for small open economy, we evaluate the effects of fiscal consumption tax shocks on the presence of two fiscal rules in the periods of 1990 to 2000 and 2001 to 2010. The two rules are based on: first, taxes adjust according to the debt level and government expenditures; and second, balanced budget where taxes adjust every time in order to preserve the equilibrium in the fiscal budget. Results show that after the fiscal shock hits the economy, the first fiscal rule has mayor stabilization effects on the economy than the second one, around 50%, and the GPD react greater than in the second period, 0.02%.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32115.
Date of creation: 05 Jul 2011
Date of revision:
Government expenditure; fiscal rule; pass - through; rule-of- thumb households;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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