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The short-term impact of government budgets on prices Evidence from macroeconometric models

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Author Info

  • jerome henry

    (European Central Bank)

  • sandro momigliano

    (Banca d'Italia)

  • pablo hernandez de cos

    (Banco d'Espana)

Abstract

This paper reviews the existing empirical evidence on the short-term impact on prices of fiscal variables and assesses it against new results from harmonised simulations, conducted with six well-established econometric models used by the ECB and five national central banks (NCBs) of the Eurosystem. The outcome is also compared with results from the European Commission and the OECD models. Overall, a broad consensus appears on the impact on prices of changes in individual government budget items in the euro area. In all cases, changes in government demand and in direct taxes paid by households have a limited impact on prices in the first year while, in contrast, changes in indirect taxes and employers’ social security contributions have a relatively large impact. The second year results show that the effects on prices usually take some time to materialise fully; in particular, they often become large for the public consumption shock.

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File URL: http://128.118.178.162/eps/mac/papers/0501/0501020.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0501020.

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Length: 50 pages
Date of creation: 17 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0501020

Note: Type of Document - pdf; pages: 50. paper from the ecb working paper series, also available in the Banca d'Italia and Banco d'Espana series.
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Web page: http://128.118.178.162

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Keywords: euro area; model simulations; fiscal policy; prices;

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References

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Citations

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Cited by:
  1. Raffaela Giordano & Sandro Momigliano & Stefano Neri & Roberto Perotti, 2008. "The effetcs of fiscal policy in Italy: Evidence from a VAR model," Temi di discussione (Economic working papers) 656, Bank of Italy, Economic Research and International Relations Area.
  2. de Castro Fernández, Francisco & Hernández de Cos, Pablo, 2006. "The economic effects of exogenous fiscal shocks in Spain: a SVAR approach," Working Paper Series 0647, European Central Bank.
  3. Fabio Canova & Evi Pappa, 2003. "Price differentials in monetary unions: The role of fiscal shocks," Economics Working Papers 923, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2005.
  4. Antonio Spilimbergo & Steve Symansky & Olivier Blanchard & Carlo Cottarelli, 2009. "Fiscal Policy For The Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(2), pages 26-32, 07.
  5. Tobias Cwik & Volker Wieland, 2011. "Keynesian government spending multipliers and spillovers in the euro area," Economic Policy, CEPR & CES & MSH, vol. 26(67), pages 493-549, 07.
  6. Benjamin Carton, 2012. "Tax Reform and Coordination in a Currency Union," Economie Internationale, CEPII research center, issue 132, pages 141-158.
  7. Adela Luque, 2005. "Skill mix and technology in Spain: evidence from firm level data," Banco de Espa�a Working Papers 0513, Banco de Espa�a.
  8. Henry, Jerome & Hernandez de Cos, Pablo & Momigliano, Sandro, 2008. "The impact of government budgets on prices: Evidence from macroeconometric models," Journal of Policy Modeling, Elsevier, vol. 30(1), pages 123-143.
  9. de Castro, Francisco & Hernández de Cos, Pablo, 2008. "The economic effects of fiscal policy: The case of Spain," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1005-1028, September.

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