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Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity

  • Anton Burger

    ()

    (Research Institute for Regulatory Economics, Vienna University of Economics & B.A.)

  • Martin Zagler

    ()

    (Department of Economics, Vienna University of Economics & B.A.)

The 1990s were an extraordinary period for the US economy, both because of declining budget deficits and beginning budget surpluses, as well as for high rates of economic growth. This paper confronts the conventional wisdom that high growth rates caused budget improvements, and claims that budget consolidations also contributed to foster economic growth. We propose the existence of a non-Keynesian effect, where fiscal policy runs in contrast to Keynesian theory and a fiscal consolidation can foster economic growth. We present empirical evidence that an increase in tax revenues reduces the distortionary bias of future taxation and therefore leads to an increase in consumer confidence and consumption. Two supply side effects were proposed. A reduction in transfers reduced labor market pressures and government savings provided liquidity for financial markets which both increased incentives to invest.

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Paper provided by Vienna University of Economics and Business, Department of Economics in its series Department of Economics Working Papers with number wuwp095.

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Date of creation: Aug 2007
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Handle: RePEc:wiw:wiwwuw:wuwp095
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  1. Robert F. Westcott & C. John McDermott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Working Papers 96/59, International Monetary Fund.
  2. 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, MIT Press, vol. 117(4), pages 1329-1368, November.
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  4. António Afonso, 2001. "Non-Keynesian Effects of Fiscal Policy in the EU-15," Working Papers Department of Economics 2001/07, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
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  7. 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.
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  9. Florian Höppner & Katrin Wesche, 2000. "Non-linear Effects of Fiscal Policy in Germany: A Markov-Switching Approach," Bonn Econ Discussion Papers bgse9_2000, University of Bonn, Germany.
  10. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  11. Hjelm, Goran, 2002. "Is private consumption growth higher (lower) during periods of fiscal contractions (expansions)?," Journal of Macroeconomics, Elsevier, vol. 24(1), pages 17-39, March.
  12. Ricardo J. Caballero & Mohamad L. Hammour, 2002. "Speculative Growth," NBER Working Papers 9381, National Bureau of Economic Research, Inc.
  13. Bas van Aarle & Harry (ed.) Garretsen, 2001. "Keynesian, Non-Keynesian or No Effects of Fiscal Policy Changes? The EMU Case," CESifo Working Paper Series 570, CESifo Group Munich.
  14. Roberto Perotti, 2004. "Estimating the effects of fiscal policy in OECD countries," Working Papers 276, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  15. Francisco de Castro, 2003. "Non-Keynesian effects of public expenditure in Spain," Applied Economics Letters, Taylor & Francis Journals, vol. 10(10), pages 651-655.
  16. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
  17. Perotti, Roberto, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 0168, European Central Bank.
  18. Stephen M. Miller & Frank S. Russek, 1999. "The Relationship between Large Fiscal Adjustments and Short-Term Output Growth Under Alternative Fiscal Policy Regimes," Working papers 1999-04, University of Connecticut, Department of Economics, revised Mar 2002.
  19. Zaghini, A., 1999. "The Economic Policy of Fiscal Consolidations: The European Experience," Papers 355, Banca Italia - Servizio di Studi.
  20. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
  21. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
  22. Alesina, Alberto Francesco & Perotti, Roberto & Tavares, Jose, 1998. "The Political Economy of Fiscal Adjustments," Scholarly Articles 12553724, Harvard University Department of Economics.
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