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Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity

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Author Info
Anton Burger () (Research Institute for Regulatory Economics, Vienna University of Economics & B.A.)
Martin Zagler () (Department of Economics, Vienna University of Economics & B.A.)

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Abstract

The 1990s were an extraordinary period for the US economy, both because of declining budget deficits and beginning budget surpluses, as well as for high rates of economic growth. This paper confronts the conventional wisdom that high growth rates caused budget improvements, and claims that budget consolidations also contributed to foster economic growth. We propose the existence of a non-Keynesian effect, where fiscal policy runs in contrast to Keynesian theory and a fiscal consolidation can foster economic growth. We present empirical evidence that an increase in tax revenues reduces the distortionary bias of future taxation and therefore leads to an increase in consumer confidence and consumption. Two supply side effects were proposed. A reduction in transfers reduced labor market pressures and government savings provided liquidity for financial markets which both increased incentives to invest.

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Paper provided by Vienna University of Economics and B.A., Department of Economics in its series Department of Economics Working Papers with number wuwp095.

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Date of creation: Aug 2007
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Handle: RePEc:wiw:wiwwuw:wuwp095

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Find related papers by JEL classification:
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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  2. van Aarle, Bas & Garretsen, Harry, 2003. "Keynesian, non-Keynesian or no effects of fiscal policy changes? The EMU case," Journal of Macroeconomics, Elsevier, vol. 25(2), pages 213-240, June. [Downloadable!] (restricted)
    Other versions:
  3. Stephen M. Miller & Frank S. Russek, 1999. "The Relationship between Large Fiscal Adjustments and Short-Term Output Growth Under Alternative Fiscal Policy Regimes," Working papers 1999-04, University of Connecticut, Department of Economics, revised Mar 2002. [Downloadable!]
    Other versions:
  4. Martin Feldstein, 1982. "Government Deficits and Aggregate Demand," NBER Working Papers 0435, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer. [Downloadable!] (restricted)
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    Other versions:
  9. António Afonso, 2001. "Non-Keynesian Effects of Fiscal Policy in the EU-15," Working Papers 2001/07, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
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  11. 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.
    Other versions:
  12. Bertola, Giuseppe & Drazen, Allan, 1993. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," American Economic Review, American Economic Association, vol. 83(1), pages 11-26, March. [Downloadable!] (restricted)
    Other versions:
  13. Roberto Perotti, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 168, European Central Bank. [Downloadable!]
  14. Francesco Giavazzi & Marco Pagano, 1996. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," NBER Working Papers 5332, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Francisco de Castro, 2003. "Non-Keynesian effects of public expenditure in Spain," Applied Economics Letters, Taylor and Francis Journals, vol. 10(10), pages 651-655, August. [Downloadable!] (restricted)
  16. Roberto Perotti, 2004. "Estimating the effects of fiscal policy in OECD countries," Working Papers 276, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  17. Florian Höppner & Katrin Wesche, 2000. "Non-linear Effects of Fiscal Policy in Germany: A Markov-Switching Approach," Bonn Econ Discussion Papers bgse9_2000, University of Bonn, Germany. [Downloadable!]
  18. 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. [Downloadable!] (restricted)
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  19. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November. [Downloadable!] (restricted)
  20. C. John McDermott & Robert F. Westcott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Working Papers 96/59, International Monetary Fund.
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