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Fiscal Policy and International Competitiveness: Evidence from Ireland

Author

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  • Galstyan, Vahagn

    (Trinity College Dublin)

  • Lane, Philip R.

    (Trinity College Dublin)

Abstract

Our goal in this paper is to investigate the relation between government spending and the long-run behaviour of the Irish real exchange rate. We postulate that an increase in government consumption should be associated with real appreciation, while the impact of government investment is ambiguous. Empirically, we find that an increase in government consumption indeed appreciates the real exchange rate while an increase in government investment is associated with real depreciation. Accordingly, the level and composition of government spending matters for Irish external competitiveness.

Suggested Citation

  • Galstyan, Vahagn & Lane, Philip R., 2009. "Fiscal Policy and International Competitiveness: Evidence from Ireland," The Economic and Social Review, Economic and Social Studies, vol. 40(3), pages 299-315.
  • Handle: RePEc:eso:journl:v:40:y:2009:i:3:p:299-315
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    References listed on IDEAS

    as
    1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2002. "External wealth, the trade balance, and the real exchange rate," European Economic Review, Elsevier, vol. 46(6), pages 1049-1071, June.
    2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
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    5. Philip R. Lane & Gian Maria Milesi-Ferretti, 2004. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 841-857, November.
    6. Benetrix, Agustin & Lane, Philip R., 2009. "The Impact of Fiscal Shocks on the Irish Economy," The Economic and Social Review, Economic and Social Studies, vol. 40(4), pages 407-434.
    7. Wynne, Mark A., 1996. "Balanced budget multipliers," Journal of Macroeconomics, Elsevier, vol. 18(2), pages 197-211.
    8. Vahagn Galstyan & Philip R. Lane, 2009. "The Composition of Government Spending and the Real Exchange Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(6), pages 1233-1249, September.
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    12. Vahagn Galstyan, 2015. "Country Size and Exchange Rates," Economica, London School of Economics and Political Science, vol. 82(326), pages 222-235, April.
    13. Lane, Philip R. & Perotti, Roberto, 2003. "The importance of composition of fiscal policy: evidence from different exchange rate regimes," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2253-2279, September.
    14. Luca Antonio Ricci & Gian Maria Milesi‐Ferretti & Jaewoo Lee, 2013. "Real Exchange Rates and Fundamentals: A Cross‐Country Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(5), pages 845-865, August.
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    Citations

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    Cited by:

    1. Mariarosaria Comunale, 2016. "Dutch disease, real effective exchange rate misalignments and their effect on GDP growth in the EU," CAMA Working Papers 2016-28, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Jacquinot, Pascal & Clancy, Daragh & Lozej, Matija, 2014. "The effects of government spending in a small open economy within a monetary union," Working Paper Series 1727, European Central Bank.
    3. repec:eso:journl:v:48:y:2017:i:3:p:231-251 is not listed on IDEAS
    4. Comunale, Mariarosaria, 2017. "Dutch disease, real effective exchange rate misalignments and their effect on GDP growth in EU," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 350-370.
    5. Benetrix, Agustin & Lane, Philip R., 2009. "The Impact of Fiscal Shocks on the Irish Economy," The Economic and Social Review, Economic and Social Studies, vol. 40(4), pages 407-434.
    6. Vahagn Galstyan, 2015. "Country Size and Exchange Rates," Economica, London School of Economics and Political Science, vol. 82(326), pages 222-235, April.
    7. Francisco de Castro & Laura Fernández, 2013. "The Effects Of Fiscal Shocks On The Exchange Rate In Spain," The Economic and Social Review, Economic and Social Studies, vol. 44(2), pages 151-180.
    8. Vahagn Galstyan & Adnan Velic, 2017. "Taxation, Debt and Relative Prices in the Long Run: The Irish Experience," The Economic and Social Review, Economic and Social Studies, vol. 48(3), pages 231-251.
    9. alamro, Hassan, 2014. "تأثير السياسة المالية على التنافسية السعرية لقطاع الصناعة التحويلية الأردني
      [The impact of fiscal policy on the price competitiveness of the manufacturing sector of Jordan]
      ," MPRA Paper 56286, University Library of Munich, Germany.
    10. Francisco Castro & Daniel Garrote, 2015. "The effects of fiscal shocks on the exchange rate in the EMU and differences with the USA," Empirical Economics, Springer, vol. 49(4), pages 1341-1365, December.
    11. Lane, Philip R., 2009. "A New Fiscal Strategy for Ireland," The Economic and Social Review, Economic and Social Studies, vol. 40(2), pages 233-253.
    12. Philip Lane, 2010. "External Imbalances and Fiscal Policy," The Institute for International Integration Studies Discussion Paper Series iiisdp314, IIIS.

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