HOME BIAS IN GOVERNMENT SPENDING AND QUASI NEUTRALITY OF FISCAL SHOCKS

2005 ◽  
Vol 9 (2) ◽  
pp. 288-294 ◽  
Author(s):  
GIOVANNI GANELLI
Keyword(s):  
Fiscal Policy ◽  
Government Spending ◽  
Home Bias ◽  
Policy Implications ◽  
Policy Shocks ◽  
Fiscal Shocks

We show how introducing home bias in government spending in the redux model generates quasi neutrality of fiscal policy shocks. We offer an intuitive explanation for this result and we stress its policy implications.

HABIT FORMATION AND GOVERNMENT SPENDING IN A SMALL OPEN ECONOMY

2003 ◽  
Vol 7 (3) ◽  
pp. 407-423 ◽  
Author(s):  
Cem Karayalçin
Keyword(s):  
Fiscal Policy ◽  
General Equilibrium ◽  
Current Account ◽  
Open Economy ◽  
Equilibrium Model ◽  
Government Spending ◽  
Time Preference ◽  
Small Open Economy ◽  
Long Run ◽  
Fiscal Shocks

The paper studies the effects of an expansionary fiscal policy in a general equilibrium model of a small open economy. Households are assumed to possess habit-forming, endogenous rates of time preference. In response to fiscal shocks, the model generates cyclical endogenous persistence and procyclical time paths for consumption, employment, and investment, as well as a countercyclical path for the current account. Furthermore, fiscal shocks are shown to have positive long-run effects on output and negative long-run effects on consumption.

Empirical Analysis of the Effect of Fiscal Policy Shocks in China

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Jia Ji
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Government Spending ◽  
Policy Design ◽  
Policy Decision ◽  
Growth Stimulation ◽  
Economic Activities ◽  
Policy Makers ◽  
Policy Shocks ◽  
Tax Shocks

Abstract The central issues concerning fiscal policy makers include macroeconomic stability and growth stimulation. The policy decision process is facilitated by investigation on the effects of fiscal policy, such as a change in government spending or taxes on macroeconomic variables comprising inflation, aggregate output, and interest rates. Build on the Blanchard-Perotti identification approach, this paper empirically analyses the influence of fiscal policy to aggregate economic activities in China, and the estimated results are compared between China and the advanced economies. The findings demonstrate that the impulse responses incurred by tax shocks are generally stimulative, although government spending shocks tend to be neutral, revealing meaningful implications for the fiscal space and policy design.

Are there asymmetries in fiscal policy shocks?

2015 ◽  
Vol 42 (2) ◽  
pp. 303-321 ◽  
Author(s):  
Periklis Gogas ◽  
Ioannis Pragidis
Keyword(s):  
Growth Rate ◽  
Fiscal Policy ◽  
Government Spending ◽  
Government Revenue ◽  
Content Type ◽  
Keynesian Theory ◽  
Different Types ◽  
Cyclical Component ◽  
Policy Shocks ◽  
Spending Shocks

Purpose – The purpose of this paper is to test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation. Design/methodology/approach – The authors use two alternative vector autoregressive systems in order to construct the fiscal policy shocks: one with the simple sum monetary aggregate MZM and one with the alternative CFS Divisia MZM aggregate. From each one of these systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These eight different types of unanticipated fiscal shocks were used next to empirically examine their effects on the growth rate and cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock. Findings – The authors come up with three key findings: first, all fiscal multipliers are below unity but with signs as predicted by Keynesian theory. Second, government expenditures have a larger impact as compared to the tax policy and finally, positive government spending shocks are more significant than negative spending shocks. All these results are in line with previous studies and are robust through many tests using structural identification proposed by Blanchard and Perotti (2002). Practical implications – The empirical findings in this manuscript can be used for conducting a more efficient fiscal policy. The importance of government spending shocks is empirically verified along with the asymmetries related to price stickiness predicted by Keynesian theory. According to the results an efficient fiscal policy would: in terms of an expansionary policy, use government spending as a means to stimulate the economy instead of tax cuts and in the case of a contractionary policy use government revenue (higher taxes) so that the costs of this policy in terms of output lost are lower. Originality/value – In this study the authors introduce three main innovations: first, to the best of our knowledge the Divisia monetary aggregates have not yet been used to previous research pertaining to fiscal policy. Second, following Cover’s (1992) procedure of identifying monetary policy shocks we extract the unanticipated fiscal policy shocks on government spending and revenue. Finally, the authors explicitly test for the asymmetric effects on the growth rate and the cyclical component of real private GNP of a contractionary and expansionary fiscal policy.

scholarly journals Measuring the Output Responses to Fiscal Policy

2012 ◽  
Vol 4 (2) ◽  
pp. 1-27 ◽  
Author(s):  
Alan J Auerbach ◽  
Yuriy Gorodnichenko
Keyword(s):  
Fiscal Policy ◽  
Regime Switching ◽  
Military Spending ◽  
Fiscal Multipliers ◽  
Regime Switching Models ◽  
Switching Models ◽  
Policy Shocks ◽  
Jel C32 ◽  
Research And Policy ◽  
Fiscal Shocks

A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession. We provide three insights. First, using regime-switching models, we find large differences in the size of spending multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions. Second, we estimate multipliers for more disaggregate spending variables which behave differently relative to aggregate fiscal policy shocks, with military spending having the largest multiplier. Third, we show that controlling for predictable components of fiscal shocks tends to increase the size of the multipliers in recessions. (JEL C32, E62, H20, H62, H63)

scholarly journals Fiscal Policy Shocks and Private Consumption in Nigeria: Blanchard-Perotti (2002) Approach

2015 ◽  
Vol 7 (6(J)) ◽  
pp. 42-60
Author(s):  
OSENI Isiaq Olasunkanmi
Keyword(s):  
Fiscal Policy ◽  
Government Spending ◽  
Private Consumption ◽  
Government Expenditure ◽  
Structural Var ◽  
Long Run ◽  
Short Period ◽  
Policy Shocks ◽  
Negative Effect ◽  
The Government

This paper examines the effects of fiscal policy shocks on private consumption in Nigeria. Albeit, there is a considerable number of works examining the effects of fiscal policy shocks on private consumption globally but in Nigeria, no study has used the structural VAR approach by Blanchard and Perotti (2002) as used in this paper. This approach relies on institutional information about the tax and transfer systems and the timing of tax collection to identify the automatic response of taxes and spending to private consumption as well as to infer fiscal shocks. The key result of this paper is that positive government spending shocks in Nigeria have an instantaneous negative effect on private consumption. The effect becomes significant in the period following the shock. Also, positive tax shocks have a negative effect on private consumption in the period of a shock and the effect becomes statistically insignificant afterwards. On this premises, one-off changes in government spending and taxes in Nigeria are long-lived and short-lived respectively. Thus, the government expenditure changes can be used to support private consumption in the long-run while that of taxes can only be used to support private consumption for a short period.

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