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An empirical investigation of fiscal policy in New Zealand

Author

Listed:
  • Iris Claus
  • Aaron Gill
  • Boram Lee
  • Nathan McLellan

    () (The Treasury)

Abstract

This paper examines the effects of fiscal policy, measured by changes in government spending and net tax (government tax revenue less transfer payments), on New Zealand GDP. The framework of analysis is a structural vector autoregression (VAR) model of the New Zealand economy, employing and extending estimation techniques used by Blanchard and Perotti (2002). This model is then used to examine the dynamic effects of changes in government spending, taxes and transfers on GDP and the contributions of discretionary fiscal policy to New Zealand business cycles.

Suggested Citation

  • Iris Claus & Aaron Gill & Boram Lee & Nathan McLellan, 2006. "An empirical investigation of fiscal policy in New Zealand," Treasury Working Paper Series 06/08, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:06/08
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    File URL: https://treasury.govt.nz/sites/default/files/2007-09/twp06-08.pdf
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    References listed on IDEAS

    as
    1. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
    2. 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.
    3. Widmalm, Frida, 2001. "Tax Structure and Growth: Are Some Taxes Better Than Others?," Public Choice, Springer, vol. 107(3-4), pages 199-219, June.
    4. Anne-Marie Brook, 2003. "Recent and Prospective Trends in Real Long-Term Interest Rates: Fiscal Policy and other Drivers," OECD Economics Department Working Papers 367, OECD Publishing.
    5. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    6. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    7. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco.
    8. Renee Philip & John Janssen, 2002. "Indicators of Fiscal Impulse for New Zealand," Treasury Working Paper Series 02/30, New Zealand Treasury.
    9. Robert A Buckle & Kunhong Kim & Heather Kirkham & Nathan McLellan & Jared Sharma, 2002. "A structural VAR model of the New Zealand business cycle," Treasury Working Paper Series 02/26, New Zealand Treasury.
    10. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    11. Robert Buckle & Kunhong Kim & Julie Tam, 2002. "A structural var approach to estimating budget balance targets," New Zealand Economic Papers, Taylor & Francis Journals, vol. 36(2), pages 149-175.
    12. Dungey, Mardi & Pagan, Adrian, 2000. "A Structural VAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 321-342, December.
    13. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1329-1368.
    14. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
    15. Blinder, Alan S, 1981. "Temporary Income Taxes and Consumer Spending," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 26-53, February.
    16. Li Wenli & Pierre -Daniel Sarte, 2004. "Progressive Taxation and Long-Run Growth," American Economic Review, American Economic Association, vol. 94(5), pages 1705-1716, December.
    17. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
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    Citations

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    Cited by:

    1. Dungey, Mardi & Fry, Renée, 2009. "The identification of fiscal and monetary policy in a structural VAR," Economic Modelling, Elsevier, vol. 26(6), pages 1147-1160, November.
    2. Norman Gemmell & Richard Kneller & Ismael Sanz, 2011. "The Timing and Persistence of Fiscal Policy Impacts on Growth: Evidence from OECD Countries," Economic Journal, Royal Economic Society, vol. 121(550), pages 33-58, February.
    3. Razzak, Weshah, 2013. "An Empirical Study of Sectoral-Level Capital Investments in New Zealand," MPRA Paper 52461, University Library of Munich, Germany.
    4. Sebastian Gechert & Ansgar Rannenberg, 2014. "Are Fiscal Multipliers Regime-Dependent? A Meta Regression Analysis," IMK Working Paper 139-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Shahid Ali & Naved Ahmad, 2010. "The Effects of Fiscal Policy on Economic Growth: Empirical Evidences Based on Time Series Data from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 497-512.
    6. Oscar Parkyn & Tugrul Vehbi, 2014. "The Effects of Fiscal Policy in New Zealand: Evidence from a VAR Model with Debt Constraints," The Economic Record, The Economic Society of Australia, vol. 90(290), pages 345-364, September.
    7. Saten Kumar & Don J. Webber & Scott Fargher, 2009. "Wagner’s Law Revisited: Cointegration and Causality tests for New Zealand," Working Papers 0917, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    8. David Fielding, 2011. "New Zealand: The Last Bastion of Textbook Open-Economy Macroeconomics," Working Papers 1105, University of Otago, Department of Economics, revised Jun 2011.
    9. McKelvie, S. & Hall, Viv B., 2012. "Stylised facts for New Zealand business cycles: A post-1987 perspective," Working Paper Series 2364, Victoria University of Wellington, School of Economics and Finance.
    10. Buckle, Robert A. & Kim, Kunhong & Kirkham, Heather & McLellan, Nathan & Sharma, Jarad, 2007. "A structural VAR business cycle model for a volatile small open economy," Economic Modelling, Elsevier, vol. 24(6), pages 990-1017, November.
    11. Anna Hamer-Adams & Martin Wong, 2018. "Quantifying fiscal multipliers in New Zealand: The evidence from SVAR models," Reserve Bank of New Zealand Analytical Notes series AN2018/05, Reserve Bank of New Zealand.

    More about this item

    Keywords

    Fiscal policy; business cycle fluctuations; vector autoregression;

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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