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The Effects of Government Spending on the Distribution of Consumption

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  • Giacomo De Giorgi
  • Luca Gambetti

Abstract

This paper proposes an empirical framework to study the effects of a policy regime change defined as an unpredictable and permanent change in the policy parameters. In particular I show how to make conditional forecast and perform impulse response functions and counterfactual analysis. As an application, the effects of changes in fiscal policy rules in the US are investigated. I find that discretionary fiscal policy has become more countercyclical over the last decades. In absence of such a change, surplus would have been higher, debt lower and output gap more volatile but only until mid 80s. An increase in the degree of counter-cyclicality of fiscal policy has a positive effect on output gap in periods where the level of debt-to-GDP ratio is low and a zero or negative effect when the ratio is high. This explains why a more countercylical stance of the systematic fiscal policy taking place in 2008:II is predicted to be rather ineffective for recovering from the crisis.

Suggested Citation

  • Giacomo De Giorgi & Luca Gambetti, 2012. "The Effects of Government Spending on the Distribution of Consumption," Working Papers 645, Barcelona School of Economics.
  • Handle: RePEc:bge:wpaper:645
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    Cited by:

    1. Minjoon Lee & Jinhui Bai & Fudong Zhang & Ruediger Bachmann, 2014. "The Welfare Costs of Fiscal Uncertainty: a Quantitative Evaluation," 2014 Meeting Papers 744, Society for Economic Dynamics.
    2. Ruediger Bachmann & Jinhui Bai & Minjoon Lee & Fudong Zhang, 2020. "The Welfare and Distributional Effects of Fiscal Volatility: a Quantitative Evaluation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 38, pages 127-153, October.
    3. Abdulaleem Isiaka & Alexander Mihailov & Giovanni Razzi, 2022. "Distributional Effects of Public Spending and Tax Shocks in Middle-Income Countries: A Panel VAR Approach," Economics Discussion Papers em-dp2022-09, Department of Economics, University of Reading.
    4. Emily Anderson & Atsushi Inoue & Barbara Rossi, 2016. "Heterogeneous Consumers and Fiscal Policy Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(8), pages 1877-1888, December.
    5. James S. Cloyne & Paolo Surico, 2017. "Household Debt and the Dynamic Effects of Income Tax Changes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 45-81.
    6. Reza Najarzadeh & Alireza Keikha & Hassan Heydari, 2021. "Dynamics of consumption distribution and economic fluctuations," Economic Change and Restructuring, Springer, vol. 54(3), pages 847-876, August.
    7. Giacomo De Giorgi & Luca Gambetti, 2017. "Business Cycle Fluctuations and the Distribution of Consumption," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 19-41, January.
    8. Luisa Corrado & Edgar Silgado-Gómez, 2018. "Assessing the Effects of Fiscal Policy News under Imperfect Information: Evidence from Aggregate and Individual Data," CEIS Research Paper 447, Tor Vergata University, CEIS, revised 06 Nov 2018.
    9. Christian Bredemeier & Falko Juessen & Roland Winkler, 2020. "Fiscal Policy and Occupational Employment Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1527-1563, September.
    10. Javier Andrés & José E. Boscá & Javier Ferri & Cristina Fuentes‐Albero, 2022. "Households' Balance Sheets and the Effect of Fiscal Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(4), pages 737-778, June.
    11. Laure Simon, 2023. "Fiscal Stimulus and Skill Accumulation over the Life Cycle," Staff Working Papers 23-9, Bank of Canada.
    12. Heer, Burkhard & Scharrer, Christian, 2018. "The age-specific burdens of short-run fluctuations in government spending," Journal of Economic Dynamics and Control, Elsevier, vol. 90(C), pages 45-75.
    13. Alymkulova Nargiza Bakytovna & Atabaev Nurlan Uzgenovich & Ganiev Junus Mashrapovich, 2016. "Var - analysis of Global financial economic crisis impact on public budget and unemployment: evidence from the economy of the Kyrgyz Republic," Экономика региона, CyberLeninka;Федеральное государственное бюджетное учреждение науки «Институт экономики Уральского отделения Российской академии наук», vol. 12(4), pages 1090-1101.

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    More about this item

    Keywords

    Policy regime change; Tims-varying coefficients VAR; Parameter identification; Fiscal policy rules; Countercyclical fiscal policy;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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