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The impact of fiscal policy on the business cycle

Author

Listed:
  • Ashley Dunstan
  • David Hargreaves
  • Ozer Karagedikli

    (Reserve Bank of New Zealand)

Abstract

This article sets out theoretical and empirical evidence on the impact of fiscal policy on the business cycle. Our analysis suggests that fiscal policy has a significant influence on cyclical conditions in New Zealand. Simple measures of the stance of fiscal policy, such as the Treasury’s measure of fiscal impulse, are useful, but the details of fiscal initiatives also need to be analysed to determine macroeconomic impact. For example, tax changes can have very different effects: tax cuts designed to spur savings could be mildly contractionary, while company tax cuts will tend to be expansionary. The significance of fiscal changes for monetary policy also depends partly on other factors driving the business cycle.

Suggested Citation

  • Ashley Dunstan & David Hargreaves & Ozer Karagedikli, 2007. "The impact of fiscal policy on the business cycle," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, March.
  • Handle: RePEc:nzb:nzbbul:march2007:2
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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2007/2007mar70-1dunstanhargreaveskaragedikli.pdf
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    Cited by:

    1. International Monetary Fund, 2009. "New Zealand; Selected Issues," IMF Staff Country Reports 09/146, International Monetary Fund.
    2. Ágeir Daníelsson & Lúdvík Elíasson & Magnús F. Gudmundsson & Björn A. Hauksson & Ragnhildur Jónsdóttir & Thorvardur Tjörvi Ólafsson & Thórarinn G. Pétursson, 2006. "QMM A Quarterly Macroeconomic Model of the Icelandic Economy," Economics wp32, Department of Economics, Central bank of Iceland.
    3. Felicity C Barker & Robert A Buckle & Robert W St Clair, 2008. "Roles of Fiscal Policy in New Zealand," Treasury Working Paper Series 08/02, New Zealand Treasury.
    4. Bruce White, 2013. "Macroeconomic Policy in New Zealand: From the Great Inflation to the Global Financial Crisis," Treasury Working Paper Series 13/30, New Zealand Treasury.

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