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The Effects of Fiscal Policy on Output: A DSGE Analysis

  • Davide Furceri
  • Annabelle Mourougane

This paper examines the effects of fiscal policy on output in the euro area. For this purpose we develop a DSGE Fiscal Model with endogenous government bond yields to assess the impact of different fiscal policy shocks on output, its components and on government debt. The simulations suggest that fiscal policy is effective in supporting activity, especially in the short term. In particular, the largest fiscal multipliers are found for an increase in public investment, public consumption and a cut in the wage tax. The results are robust to different parameter calibrations and are economically significant. Amongst the different structural parameters, the share of liquidity constrained households and price persistence are found to be the ones which affect the most fiscal multipliers. Les effets de la politique budgétaire sur la production : une analyse à partir d'un modèle DSGE Ce papier examine les effets de la politique budgétaire sur l?activité dans la zone euro. À cette fin, nous avons développé un modèle budgétaire DSGE dans lequel les rendements des obligations d?État sont endogènes et nous examinons l?effet de différents chocs budgétaires sur le PIB et ses composantes et sur la dette publique. Les simulations indiquent que la politique budgétaire permet de soutenir l?activité, en particulier sur le court terme. Plus précisément, les multiplicateurs budgétaires les plus larges sont associés à une augmentation de l?investissement public, de la consommation publique ainsi qu?à une baisse du taux d?imposition sur les salaires. Les résultats sont robustes à différentes valeurs des paramètres structuraux du modèle et sont économiquement significatifs. Parmi les différents paramètres structurels, la part des ménages qui rencontrent des contraintes de liquidité et les inerties au niveau des prix sont les paramètres qui affectent le plus les multiplicateurs fiscaux.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 770.

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Date of creation: 18 May 2010
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Handle: RePEc:oec:ecoaaa:770-en
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