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The Relationship Between Large Fiscal Adjustments And Short-Term Output Growth Under Alternative Fiscal Policy Regimes

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  • Stephen M. Miller
  • Frank S. Russek

Abstract

A small but growing body of literature searches for evidence of non-Keynesian effects of fiscal contractions. That is, some evidence exists that large fiscal contractions stimulate short-run economic activity. This article continues that research effort by systematically examining the effects (if any) of unusual fiscal events-either non-Keynesian results within a Keynesian model or Keynesian results within a neoclassical model-on short-run economic activity. The authors examine this issue within three separate models-a St. Louis equation, a Hall-type consumption equation, and a growth accounting equation. The empirical findings do not provide strong systematic support for the view that unusually large fiscal contractions/expansions reverse the effects of normal fiscal events. Moreover, the authors find only limited evidence that trigger points are empirically important. Copyright 2003 Western Economic Association International.

Suggested Citation

  • Stephen M. Miller & Frank S. Russek, 2003. "The Relationship Between Large Fiscal Adjustments And Short-Term Output Growth Under Alternative Fiscal Policy Regimes," Contemporary Economic Policy, Western Economic Association International, vol. 21(1), pages 41-58, January.
  • Handle: RePEc:bla:coecpo:v:21:y:2003:i:1:p:41-58
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    Cited by:

    1. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta & Charl Jooste & Stephen M. Miller & Zeynel Abidin Ozdemir, 2012. "Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience," Working papers 2012-27, University of Connecticut, Department of Economics.
    2. Luca Agnello & Ricardo M. Sousa, 2014. "How Does Fiscal Consolidation Impact on Income Inequality?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 702-726, December.
    3. António Afonso, 2010. "Expansionary fiscal consolidations in Europe: new evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 17(2), pages 105-109, January.
    4. Anton Burger & Martin Zagler, 2007. "Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity," Department of Economics Working Papers wuwp095, Vienna University of Economics and Business, Department of Economics.
    5. Luca Agnello & Vítor Castro & Ricardo M. Sousa, 2012. "Are there change-points in the likelihood of a fiscal consolidation ending?," NIPE Working Papers 18/2012, NIPE - Universidade do Minho.
    6. repec:khe:scajes:v:3:y:2017:i:3:p:24-32 is not listed on IDEAS
    7. António Afonso, 2001. "Non-Keynesian Effects of Fiscal Policy in the EU-15," Working Papers Department of Economics 2001/07, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    8. António Afonso, 2007. "Expansionary fiscal consolidations in Europe: part of conventional wisdom?," Money Macro and Finance (MMF) Research Group Conference 2006 50, Money Macro and Finance Research Group.
    9. Maria Neicheva, 2006. "Non-Keynesian Effects of Government Expenditure on Output in Bulgaria: An HP Filter Approach," Post-Communist Economies, Taylor & Francis Journals, vol. 18(1), pages 1-12.
    10. repec:sos:sosjrn:170406 is not listed on IDEAS
    11. Burger, Anton, 2006. "Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity," Department of Economics Working Paper Series 1360, WU Vienna University of Economics and Business.
    12. Luca Agnello & Ricardo M. Sousa, 2011. "Fiscal Consolidation and Income Inequality," NIPE Working Papers 34/2011, NIPE - Universidade do Minho.
    13. Gnangnon, Sena Kimm, 2013. "The consequences of fiscal episodes in OECD DAC countries for aid supply," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(3), pages 302-313.

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