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Searching for Non-Keynesian Effects of Fiscal Policy

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Abstract

We search for the circumstances in which the response of national saving to fiscal policy contradicts conventional Keynesian predictions, using data from 18 OECD countries. The data suggest that non-Keynesian effects tend to be associated with large and persistent fiscal impulses. Such responses can be traced to changes in taxes and transfers more than to changes in government consumption and are stronger for fiscal contractions than expansions. During large contractions an increase in taxes has no effect on national saving. High or rapidly growing public debt is not a good predictor of non-Keynesian effects. Finally, the composition of the fiscal impulse matters: the non-Keynesian effects of a large fiscal contraction are amplified when this is carried out primarily by raising taxes.

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 16.

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Date of creation: 01 Feb 1999
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Publication status: Published in European Economic Review, June 2000, vol. 44, pages 1259-1290
Handle: RePEc:sef:csefwp:16

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Keywords: Fiscal policy; national saving; contractionary fiscal expansions;

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  1. Bayoumi, Tamim & Masson, Paul R & Samiei, Hossein, 1996. "International Evidence on the Determinants of Saving," CEPR Discussion Papers 1368, C.E.P.R. Discussion Papers.
  2. Alan Sutherland, . "Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?," Discussion Papers 95/17, Department of Economics, University of York.
  3. Giuseppe Nicoletti, 1988. "Private Consumption, Inflation and the "Debt Neutrality Hypothesis": The Case of Eight OECD Countries," OECD Economics Department Working Papers 50, OECD Publishing.
  4. Giavazzi, Francesco & Pagano, Marco, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," CEPR Discussion Papers 417, C.E.P.R. Discussion Papers.
  5. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
  6. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2003. "International Unions," Harvard Institute of Economic Research Working Papers 2001, Harvard - Institute of Economic Research.
  7. Giuseppe Bertola & Allan Drazen, 1991. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," NBER Working Papers 3844, National Bureau of Economic Research, Inc.
  8. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
  9. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March.
  10. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316 National Bureau of Economic Research, Inc.
  11. Giavazzi, Francesco & Pagano, Marco, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," CEPR Discussion Papers 1284, C.E.P.R. Discussion Papers.
  12. repec:fth:coluec:754 is not listed on IDEAS
  13. Carroll, Christopher D. & Weil, David N., 1994. "Saving and growth: a reinterpretation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 133-192, June.
  14. Robert F. Westcott & C. John McDermott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Working Papers 96/59, International Monetary Fund.
  15. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries," IMF Working Papers 96/70, International Monetary Fund.
  16. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers 662, C.E.P.R. Discussion Papers.
  17. Perotti, Roberto, 1996. "Fiscal Consolidation in Europe: Composition Matters," American Economic Review, American Economic Association, vol. 86(2), pages 105-10, May.
  18. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," NBER Working Papers 5730, National Bureau of Economic Research, Inc.
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