Measuring How Fiscal Shocks Affect Durable Spending in Recessions and Expansions

2014 ◽  
Vol 104 (5) ◽  
pp. 112-115 ◽  
Author(s):  
David Berger ◽  
Joseph Vavra
Keyword(s):  
Business Cycle ◽  
Strong Evidence ◽  
Government Spending ◽  
Cost Model ◽  
The State ◽  
Fixed Cost ◽  
State Of The Economy ◽  
Theoretical Predictions ◽  
The Business Cycle ◽  
Fiscal Shocks

We estimate how durable expenditures respond to government spending shocks at different points in the business cycle using a nonlinear VAR approach that allows for the durable multiplier to vary smoothly with the state of the economy. We find strong evidence that the aggregate durable spending response to fiscal shocks is substantially larger during expansions than during recessions, in contrast to what has been has been observed for the aggregate multiplier. We argue that these results are consistent with the theoretical predictions of the fixed cost model of durable demand in Berger and Vavra (2012).

Government spending shocks and economic growth: additional evidence from cyclical behavior of fiscal policy

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Olumide Olusegun Olaoye ◽  
Ukafor Ukafor Okorie ◽  
Oluwatosin Odunayo Eluwole ◽  
Mahmood Butt Fawwad
Keyword(s):  
Economic Growth ◽  
Business Cycle ◽  
Government Spending ◽  
Generalized Method Of Moments ◽  
The State ◽  
Fiscal Policies ◽  
Asymmetric Effect ◽  
Content Type ◽  
Spending Shocks ◽  
The Business Cycle

PurposeThis study examines the asymmetric effect of government spending on economic growth in Nigeria over the period 1980–2017. Specifically, this study investigates whether the response of economic growth to government spending shocks differs according to the nature of shocks on them. In addition, the authors examine whether the stabilizing effects of fiscal policies are dependent on the state of the business cycle.Design/methodology/approachThe study adopts the linear fiscal reaction function in addition to the nonlinear regression model of Hatemi-J (2011, 2012), Granger and Yoon (2002), which allows us to separate negative shocks from positive shocks to government spending. Similarly, the authors adopt the generalized method of moments (GMM) techniques of Hansen (1982) to account for simultaneity and endogeneity problems inherent in dynamic model.FindingsThe authors’ findings reveal that there is evidence of asymmetry in the government spending–economic growth nexus in Nigeria over the period of study. Specifically, the authors find that the response of economic growth to government spending shocks differs according to the nature of shocks on them. More specifically, the study established that the stabilizing effects of fiscal policies are dependent on the state of the business cycle.Originality/valueUnlike the traditional method of modeling asymmetry, which adopts the simple inclusion of a squared government spending term or by the inclusion of a cubic government spending term, the model adopted in this study allows us to model shocks and show how the responses of economic growth to government expenditure differ according to the nature of shocks on them.

Impacts of Several Factors in Tourism Industry

2016 ◽  
pp. 239-246
Author(s):  
P. Premkanna
Keyword(s):  
Business Cycle ◽  
Corporate Performance ◽  
Hotel Industry ◽  
Tourism Industry ◽  
The State ◽  
Economic Conditions ◽  
Economic Climate ◽  
State Of The Economy ◽  
The Business Cycle

Generally all firms can operate only in the environment of the economy. The changes in corporate performance are closely related to expansion and contraction of the business cycle. The economic climate might have a greater impact on profits than the firm's performance within its industry. The corporate performance in the hotel industry may also rely on economic conditions. Thus, the significance of a firm is closely tied to the state of the economy (or economic climate).

The Impact of Fiscal Policy on Economic Activity over the Business Cycle: An Empirical Investigation in the Case of Algeria

2019 ◽  
Vol 15 (3) ◽  
Author(s):  
Abderrahim Chibi ◽  
Sidi Mohamed Chekouri ◽  
Mohamed Benbouziane
Keyword(s):  
Fiscal Policy ◽  
Business Cycle ◽  
Government Spending ◽  
Economic Recession ◽  
Policy Decision ◽  
Vector Autoregressive ◽  
Asymmetric Effects ◽  
The Business Cycle ◽  
The Right ◽  
The Impact

Abstract In this paper, we aim to analyze whether the effect of fiscal policy on economic growth in Algeria differs throughout the business cycle. To tackle this question, we use a Markov Switching Vector Autoregressive (MSVAR) framework. We find evidence of asymmetric effects of fiscal policy through regimes, defined by the state of the business cycle (recession and boom). The results show small positive government spending and revenue multipliers in the short term in both regimes. Most importantly, fiscal policy shocks have a stronger impact in times of economic recession than in times of expansion, which confirm the hypothesis of asymmetric effects. However, the impact of government spending is stronger than the impact of public revenue during recession periods. In addition, fiscal policy decision-makers interact with Anti-Keynesian view (pro-cyclical). Our results imply that there is something to gain by using the "right instrument" at the "right time".

scholarly journals Job protection deregulation in good and bad times

2019 ◽  
Author(s):  
Romain Duval ◽  
Davide Furceri ◽  
Joao Jalles
Keyword(s):  
Business Cycle ◽  
Projection Method ◽  
The State ◽  
Employment Effect ◽  
Short Term ◽  
Local Projection ◽  
The Past ◽  
Level Data ◽  
Advanced Economies ◽  
State Of The Economy

Abstract This paper explores the short-term employment effect of deregulating job protection for regular workers and how it varies with prevailing business cycle conditions. We apply the local projection method to a newly constructed dataset of major regular job protection reforms covering 26 advanced economies over the past four decades. The analysis relies on country-sector-level data, using as identifying assumption the fact that stringent dismissal regulations are more binding in sectors that are characterized by a higher ‘natural’ propensity to make regular adjustments to the workforce. We find that the response of sectoral employment to deregulation depends crucially on the state of the economy at the time of reform—deregulation increases employment if implemented during an economic expansion, but reduces employment if carried out in a recession. These findings are consistent with theory and are robust to a battery of sensitivity checks.

scholarly journals How Should Unemployment Benefits Respond to the Business Cycle?

2003 ◽  
Vol 3 (1) ◽  
Author(s):  
Michael T. Kiley
Keyword(s):  
Simple Model ◽  
Business Cycle ◽  
Unemployment Insurance ◽  
Initial Level ◽  
The United States ◽  
Consumption Smoothing ◽  
Unemployment Benefits ◽  
Optimal Program ◽  
State Of The Economy ◽  
The Business Cycle

Abstract Unemployment insurance programs balance the benefits of consumption smoothing against the disincentive effects of unemployment benefits. This balance is likely sensitive to the cyclical state of the economy, and hence the generosity of benefits should also respond to the business cycle. The nature of such responses in an optimal unemployment insurance (UI) program is analyzed in a simple model. The results suggest that an optimal UI program would increase the initial level of benefits and probably extend higher benefits over time in response to a recessionary shock. In the simple model, an extension of benefits, such as exists automatically in the system in the United States, provides poorer insurance and poorer incentives than the optimal program, and does so at a higher cost. Moreover, the UI system in the U.S. provides a substantially higher level of welfare to workers who lose jobs during tight labor markets.

Fiscal Multipliers and Their Relevance in a Currency Union – A Survey

2014 ◽  
Vol 15 (2) ◽  
pp. 259-271 ◽  
Author(s):  
Gerhard Illing ◽  
Sebastian Watzka
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Business Cycle ◽  
Government Spending ◽  
Currency Union ◽  
Euro Crisis ◽  
Fiscal Multipliers ◽  
Role Of The State ◽  
The Business Cycle

Abstract The article reviews the debate on government spending multiplier and provides a detailed discussion of the underlying economic mechanisms, focusing on the role of the state of the business cycle and the monetary policy reaction. Special emphasis is on the effects of fiscal policy within a currency union and its implications for the euro crisis.

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