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Estimating the effects of fiscal policy in OECD countries

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  • Perotti, Roberto

Abstract

This paper studies the effects of fiscal policy on GDP, prices and interest rates in 5 OECD countries, using a structural Vector Autoregression approach. Its mains results can be summarized as follows; 1) The effects of fiscal policy on GDP and its components have become substantially weaker in the last 20 years; 2) The tax multipliers tend to be negative but small; 3) Once plausible values of the price elasticity of governments spending are imposed, the negative effects of government spending on prices that have been frequently estimated become positive, although usually small and not always significant; 4) Government spending shocks have significant effects on the real short interest rate, but uncertain signs; 5) Net tax shocks have very small effects on prices; 6) The US is an outlier in many dimensions; US responses to fiscal shocks are often not representative of the average OECD country included in this sample. JEL Classification: E62, H30

Suggested Citation

  • Perotti, Roberto, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 0168, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20020168
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    File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp168.pdf
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    References listed on IDEAS

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    1. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
    2. Craig Burnside & Martin Eichenbaum & Jonas D. M. Fisher, 1999. "Assessing the effects of fiscal shocks," Working Paper Series WP-99-18, Federal Reserve Bank of Chicago.
    3. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
    4. Romer, Christina D. & Romer, David H., 1994. "Monetary policy matters," Journal of Monetary Economics, Elsevier, vol. 34(1), pages 75-88, August.
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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