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Balanced Budget Government Spending in a Small Open Regional Economy

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  • Patrizio Lecca

    ()
    (Department of Economics, Strathclyde University)

  • Peter McGregor

    ()
    (Fraser of Allander Institute, Strathclyde University)

  • Kim Swales

    ()
    (Department of Economics, University of Strathclyde)

Abstract

This paper investigates the impact of a balanced budget fiscal policy expansion in a regional context within a numerical dynamic general equilibrium model. We take Scotland as an example where, recently, there has been extensive debate on greater fiscal autonomy. In response to a balanced budget fiscal expansion the model suggests that: an increase in current government purchase in goods and services has negative multiplier effects only if the elasticity of substitution between private and public consumption is high enough to move downward the marginal utility of private consumers; public capital expenditure crowds in consumption and investment even with a high level of congestion; but crowding out effects might arise in the short-run if agents are myopic.

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Bibliographic Info

Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1020.

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Length: 40 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:str:wpaper:1020

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Keywords: regional computable general equilibrium analysis; fiscal federalism; fiscal policy.;

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Cited by:
  1. Allan, Grant & Lecca, Patrizio & McGregor, Peter & Swales, Kim, 2014. "The economic and environmental impact of a carbon tax for Scotland: A computable general equilibrium analysis," Ecological Economics, Elsevier, vol. 100(C), pages 40-50.

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