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The Timing and Persistence of Fiscal Policy Impacts on Growth: Evidence from OECD Countries

  • Norman Gemmell
  • Richard Kneller
  • Ismael Sanz

The literatures testing for aggregate short-run or long‐run growth impacts of fiscal policy use quite different methodologies. The former generally focuses on temporary fiscal ‘shocks’; the latter typically have no short‐run dynamics or assume homogeneity. We use regression methods that treat heterogeneous short‐run dynamics explicitly within a long‐run model. Results suggest that previously estimated ‘long‐run’ growth effects of fiscal policy are typically achieved quickly, consistent with results from short‐run models. In principle these short‐run effects ‘persist’; in practice regular fiscal policy changes in OECD countries mean that persistent increases or decreases in growth rates are rare.

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File URL: http://hdl.handle.net/10.1111/j.1468-0297.2010.02414.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 121 (2011)
Issue (Month): 550 (February)
Pages: F33-F58

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Handle: RePEc:ecj:econjl:v:121:y:2011:i:550:p:f33-f58
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