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Searching for Non-Keynesian Effects of Fiscal Policy

We search for the circumstances in which the response of national saving to fiscal policy contradicts conventional Keynesian predictions, using data from 18 OECD countries. The data suggest that non-Keynesian effects tend to be associated with large and persistent fiscal impulses. Such responses can be traced to changes in taxes and transfers more than to changes in government consumption and are stronger for fiscal contractions than expansions. During large contractions an increase in taxes has no effect on national saving. High or rapidly growing public debt is not a good predictor of non-Keynesian effects. Finally, the composition of the fiscal impulse matters: the non-Keynesian effects of a large fiscal contraction are amplified when this is carried out primarily by raising taxes.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 16.

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Date of creation: 01 Feb 1999
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Publication status: Published in European Economic Review, June 2000, vol. 44, pages 1259-1290
Handle: RePEc:sef:csefwp:16
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  1. Sutherland, Alan, 1995. "Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?," CEPR Discussion Papers 1246, C.E.P.R. Discussion Papers.
  2. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
  3. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316 National Bureau of Economic Research, Inc.
  4. Bertola, G. & Drazen, A., 1991. "Trigger Pointsand Budget Cuts ; Explaining the Effects of Fiscal Austerity," Papers 26-91, Tel Aviv.
  5. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2005. "International Unions," American Economic Review, American Economic Association, vol. 95(3), pages 602-615, June.
  6. Giuseppe Nicoletti, 1988. "Private Consumption, Inflation and the "Debt Neutrality Hypothesis": The Case of Eight OECD Countries," OECD Economics Department Working Papers 50, OECD Publishing.
  7. Christopher D. Carroll & David N. Weil, 1993. "Saving and Growth: A Reinterpretation," NBER Working Papers 4470, National Bureau of Economic Research, Inc.
  8. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions be Expansionary? Tales of Two Small European Countries," NBER Working Papers 3372, National Bureau of Economic Research, Inc.
  9. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Working Papers 96/70, International Monetary Fund.
  10. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers 662, C.E.P.R. Discussion Papers.
  11. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March.
  12. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
  13. Giavazzi, Francesco & Pagano, Marco, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," CEPR Discussion Papers 1284, C.E.P.R. Discussion Papers.
  14. Bayoumi, Tamim & Masson, Paul R & Samiei, Hossein, 1996. "International Evidence on the Determinants of Saving," CEPR Discussion Papers 1368, C.E.P.R. Discussion Papers.
  15. Perotti, Roberto, 1996. "Fiscal Consolidation in Europe: Composition Matters," American Economic Review, American Economic Association, vol. 86(2), pages 105-10, May.
  16. Robert F. Westcott & C. John McDermott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Working Papers 96/59, International Monetary Fund.
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