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Fiscal Stabilisation Policy and Fiscal Institutions

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  • Campbell Leith

    (University of Glasgow)

  • Simon Wren-lewis

    (University of Exeter)

Abstract

In this paper we analyse countercyclical fiscal policy within the context of a microfounded analysis of business cycle stabilisation. We show that tax and spending instruments can have a useful counter cyclical role, even after allowing for the distortionary nature of the instruments and the need for debt sustainability. A critical barrier to the use of fiscal instruments may be political economy concerns, and we survey recent suggestions involving alternative fiscal policy institutions.

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Paper provided by ESRC World Economy and Finance Research Programme, Birkbeck, University of London in its series WEF Working Papers with number 0007.

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Date of creation: Mar 2006
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Handle: RePEc:wef:wpaper:0007

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  1. Stephanie Schmitt-Grohe & Martin Uribe, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," NBER Working Papers 10253, National Bureau of Economic Research, Inc.
  2. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  3. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  4. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Campbell leith & Jim Malley, 2002. "Estimated General Equilibrium Models for the Evaluation of Monetary Policy in the US and Europe," Working Papers 2001_16, Business School - Economics, University of Glasgow.
  6. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  7. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
  8. Charles Wyplosz, 2002. "Fiscal Policy: Institutions vs. Rules," IHEID Working Papers 03-2002, Economics Section, The Graduate Institute of International Studies.
  9. John Muellbauer, 2005. "Property Taxation and the Economy after the Barker Review," Economic Journal, Royal Economic Society, vol. 115(502), pages C99-C117, 03.
  10. Wyplosz, Charles, 2002. "Fiscal Policy: Institutions versus Rules," CEPR Discussion Papers 3238, C.E.P.R. Discussion Papers.
  11. Kirsanova, Tatiana & Vines, David & Wren-Lewis, Simon, 2006. "Fiscal Policy and Macroeconomic Stability Within a Currency Union," CEPR Discussion Papers 5584, C.E.P.R. Discussion Papers.
  12. Leith, Campbell & Wren-Lewis, Simon, 2000. "Interactions between Monetary and Fiscal Policy Rules," Economic Journal, Royal Economic Society, vol. 110(462), pages C93-108, March.
  13. Simon Wren-Lewis, 2003. "Changing the Rules," New Economy, Institute for Public Policy Research, vol. 10(2), pages 73-78, 06.
  14. Buti,Marco (ed.), 2003. "Monetary and Fiscal Policies in EMU," Cambridge Books, Cambridge University Press, number 9780521832151.
  15. Jón Steinsson, 2000. "Optimal monetary policy in an economy with inflation persistence," Economics wp11, Department of Economics, Central bank of Iceland.
  16. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  17. Pierpaolo Benigno & Michael Woodford, 2004. "Optimal Monetary and Fiscal Policy: A Linear-Quadratic Approach," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 271-364 National Bureau of Economic Research, Inc.
  18. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  19. Dixit, Avinash & Lambertini, Luisa, 2003. "Symbiosis of monetary and fiscal policies in a monetary union," Journal of International Economics, Elsevier, vol. 60(2), pages 235-247, August.
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Cited by:
  1. Philip Arestis, 2011. "Fiscal Policy Is Still an Effective Instrument of Macroeconomic Policy," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(2), pages 143-156, June.
  2. Felicity C Barker & Robert A Buckle & Robert W St Clair, 2008. "Roles of Fiscal Policy in New Zealand," Treasury Working Paper Series 08/02, New Zealand Treasury.

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