scholarly journals Fiscal policy in an open economy

2016 ◽  
Vol 16 (1) ◽  
Author(s):  
Amit Friedman ◽  
Zvi Hercowitz ◽  
Jonathan Sidi
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Public Debt ◽  
Government Spending ◽  
Tax Rates ◽  
Productivity Shocks ◽  
Policy Regime ◽  
Domestic Production ◽  
Long Run ◽  
Macroeconomic Implications

AbstractThis paper analyzes the quantitative macroeconomic implications of a fiscal policy regime based on exogenous tax rates paths and public debt/GDP target in an open economy. In this setup, government spending accommodates tax revenues and target deficits. In particular, we concentrate on pre-announced tax cuts, as well as on the adoption of a lower debt target – following policies conducted in Israel during the 2000s. We construct a model where domestic production requires imported inputs, and simulate the effects of these policies. The analysis focuses on the dynamics generated by the announcements of these policy steps, followed by their implementation. The model has the implication that a credible announcement of a future tax cut has an expansionary effect on impact, similar in nature to the effects of productivity shocks. Also, the model implies that the announcement of a lower public debt/GDP target has a contractionary effect, while it’s implementation leads to higher output in the long-run.

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.

scholarly journals Optimal fiscal policy in an open economy with capital income shifting and consumer cross-border purchases

Equilibrium ◽  
2015 ◽  
Vol 10 (2) ◽  
pp. 9
Author(s):  
Janusz Kudła ◽  
Agata Kocia ◽  
Katarzyna Kopczewska ◽  
Robert Kruszewski ◽  
Konrad Walczyk
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Public Debt ◽  
Tax Avoidance ◽  
Income Shifting ◽  
Tax Rates ◽  
Consumption Tax ◽  
Capital Income ◽  
Marginal Rate ◽  
Tax Rate

The paper presents a fiscal policy model integrating tax avoidance, the complexity of tax systems and the fiscal solvency hypothesis within the traditional framework of tax competition. Furthermore, we take into account: taxation of consumption, possibility of capital income shifting and foreign goods purchases (untaxed in the destination country). We conclude that if fiscal policy is by no means unfettered the equilibrium can be allocation efficient, provided that the marginal rate of substitution between private and public goods is one. The changes in public debt affect tax rates in equilibrium differently: positively for the consumption tax rate and negatively for the labor tax rate. The change of the capital tax depends on the level of economic internalization. This approach is especially useful during a solvency crisis and can be applied to predict tax rates’ adjustment when the bonds issuance decreases or public debt accelerates.

scholarly journals Fiscal Austerity in Ambiguous Times

2019 ◽  
Vol 11 (1) ◽  
pp. 89-131
Author(s):  
Axelle Ferriere ◽  
Anastasios G. Karantounias
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Public Debt ◽  
Optimal Policy ◽  
Government Spending ◽  
Ambiguity Aversion ◽  
Elasticity Of Substitution ◽  
Long Run ◽  
Optimal Fiscal Policy ◽  
Fiscal Austerity

This paper analyzes optimal fiscal policy with ambiguity aversion and endogenous government spending. We show that without ambiguity, optimal surplus-to-output ratios are acyclical and that there is no rationale for either reduction or further accumulation of public debt. In contrast, ambiguity about the cycle can generate optimally policies that resemble “austerity” measures. Optimal policy prescribes higher taxes in adverse times and front-loaded fiscal consolidations that lead to a balanced primary budget in the long run. This is the case when interest rates are sufficiently responsive to cyclical shocks, that is, when the intertemporal elasticity of substitution is sufficiently low. (JEL D81, E32, E43, E62, H21, H61, H63)

scholarly journals Social development and public debt sustainability

2021 ◽  
Vol 14 (2) ◽  
pp. 79
Author(s):  
Chara Vavoura ◽  
Ioannis Vavouras
Keyword(s):  
Fiscal Policy ◽  
Social Development ◽  
Public Debt ◽  
Debt Crisis ◽  
Necessary Condition ◽  
Debt Sustainability ◽  
Long Run ◽  
Policy Measures ◽  
Of Greece

The issue of public debt sustainability is of exceptional importance in the case of Greece. As a rule, the relevant analysis is limited to the examination of the fiscal policy measures reported to contribute to reducing public debt leaving out the investigation of the factors that caused the country’s debt crisis. The objective of the present paper is to explore the determinants of Greece’s debt crisis and the strategy required to address it. Our work highlights the issue of social development, which is found to be a necessary condition for ensuring the long run sustainability of the country’s public debt.

scholarly journals Firm Heterogeneity and the Long-run Effects of Dividend Tax Reform

2010 ◽  
Vol 2 (1) ◽  
pp. 131-168 ◽  
Author(s):  
François Gourio ◽  
Jianjun Miao
Keyword(s):  
Capital Accumulation ◽  
Firm Heterogeneity ◽  
Percent Level ◽  
Capital Gains ◽  
Tax Rates ◽  
Aggregate Productivity ◽  
Capital Gains Tax ◽  
Productivity Shocks ◽  
Long Run ◽  
Dividend Tax

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent. (JEL D21, E22, E62, G32, G35, H25, H32)

Policy regime changes and the long-run sustainability of fiscal policy: an application to Greece

1999 ◽  
Vol 16 (1) ◽  
pp. 71-86 ◽  
Author(s):  
Stelios Makrydakis ◽  
Elias Tzavalis ◽  
Athanassios Balfoussias
Keyword(s):  
Fiscal Policy ◽  
Policy Regime ◽  
Regime Changes ◽  
Long Run ◽  
Sustainability Of Fiscal Policy

Fiscal Policy and Government Spending

2010 ◽  
Vol 214 ◽  
pp. F61-F66 ◽  
Author(s):  
Ray Barrell ◽  
Simon Kirby
Keyword(s):  
Fiscal Policy ◽  
Government Spending ◽  
Future Generations ◽  
Coalition Government ◽  
The Third ◽  
Long Run ◽  
Full Capacity ◽  
Government Deficit ◽  
The Government ◽  
The Cost

In June the Coalition Government produced a budget that aimed to reduce the government deficit quickly. The plan was based mainly on cuts in current expenditure and reductions in transfers to individuals. There are four possible reasons for reducing the deficit, and all have been used to justify the policy. The first reason might be that the cost of borrowing is currently too high, and the second could be that if deficits persist the markets could lose confidence and the cost of borrowing would rise. The third reason might be that we have to reduce the debt stock in order that we prepare for the next crisis, whilst the fourth, and perhaps most persuasive in the long run, is that it is unfair to borrow so much and therefore reduce the consumption of future generations. If either of the first two had merit there would be a case for swift consolidation, whilst if the third or fourth predominate, we should not be in any rush to act until output is nearer full capacity.

scholarly journals Currency depreciation and output nexus: Evidence from Pakistan

2018 ◽  
Vol 65 (2) ◽  
pp. 183-200
Author(s):  
Muhammad Nawaz ◽  
Ejaz Ghani
Keyword(s):  
Open Economy ◽  
Developing Economies ◽  
Strong Support ◽  
Annual Data ◽  
Bounds Testing ◽  
Policy Regime ◽  
Currency Depreciation ◽  
Long Run ◽  
Negative Effect ◽  
Short Run

Currency depreciation as a channel of output management has been a hot and controversial topic in both developed and developing economies. In Pakistan?s case, relevant research would require study of annual data available for the period 1972 to 2010. The stationarity of variables under consideration at different orders require the application of the bounds testing approach to cointegration. The findings based on open economy IS-LM framework induce a negative effect of currency depreciation on output levels. This is consistent with the long-run estimates of the autoregressive distributive lag (ARDL) model. The short-run estimates of error-correction model (ECM) may lead to significant increment in output levels because of the depreciation of Pakistan rupee. Government spending may cause to reduce the output in the short-run, as well as, in long-run which furnishes strong support to crowding out hypothesis. The terms of trade, positive in the short-run, are negatively related to output in the long-run. However, surprise money has been insignificant in both long-run and short-run ECM. The country would need a clear long-term policy regime that inspires trust of the international community and restores the exporters? confidence.

scholarly journals The sustainability of public debt in Romania in economic and financial crisis

2010 ◽  
Author(s):  
Marian Dobranschi
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Debt Management ◽  
Policy Action ◽  
Financial Transfers ◽  
Long Run ◽  
Fiscal Restraint ◽  
Private And Public ◽  
Sustainability Of Public Debt ◽  
Real Returns

Public finances are key driver in the EU for economic recovery as the debth of the recession and credit constraints require fiscal policy action. This paper emphasis the needed review of public debt and its role in economic development as a particular challenge for emerging economies such as Romania. We explore the most important effects of public debt on economic growth like crowding-out effect, the realtionship between private and public financial transfers, the effect of public debt over GDP growth, inflation and on the sustainability of fiscal policy on the long run. Finnaly we estimate that the composition of public debt can suport debt stabilization and how debt management can stabilize the debt to GDP ratio in face to real returns and outputs growth and thus supports fiscal restraint in ensuring sustainability.

Fiscal interactions in the short and the long run: evidence from German reunification

2019 ◽  
Vol 20 (3) ◽  
pp. 711-732 ◽  
Author(s):  
Thushyanthan Baskaran
Keyword(s):  
Fiscal Policy ◽  
Property Tax ◽  
German Reunification ◽  
Tax Rates ◽  
Strategic Interactions ◽  
Local Taxation ◽  
Long Run ◽  
East German ◽  
Business Tax ◽  
First Time

Abstract This paper uses the quasi-experiment of Germany’s reunification to test for strategic interactions in local taxation. After reunification, East-German municipalities were allowed to choose, for the first time in decades, local business and property tax rates. I explore whether the tax rates they chose were influenced by the tax rates in adjacent West-German municipalities. The results show that East-German municipalities mimicked the business tax rates of their western neighbors immediately after reunification, but not in later years. I find no evidence for interactions in property tax rates. These results are broadly consistent with models of social learning in fiscal policy.

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