Temporary and persistent fiscal policy shocks

Arbeitspapier

Abstract This paper conducts an empirical investigation of the effects of temporary versus persistent fiscal policy shocks. Using data from the US I show that short lived fiscal expansions have a positive effect on output and consumption; while persistent fiscal shocks generate negative effects on consumption and - to a lesser extent - on output. Persistent fiscal expansions are associated with an increase in precautionary savings, collapse in consumers' confidence and an increase the yield curve's term premium. Consistently with consumption smoothing, short-lived fiscal expansions generate a temporary deficit in the current account, while persistent fiscal shocks leave the external balance unaffected. I find evidence of non linearity in the effects of temporary and persistent fiscal shocks according to (i) the level of public debt and (ii) the state of the business cycle. Persistent fiscal shocks have larger negative effects on consumption and output if they take place at high levels of public debt, possibly due to the higher costs of fiscal stabilization. The state of the business cycle is also very relevant. Persistent fiscal shocks generate negative multipliers in times of economic boom, but these negative multipliers disappear in periods of recession when credit constraints are more likely to bind. On the other hand, temporary fiscal shocks have positive effects both in times of expansion and in times of recession, but with the multipliers being way larger in the latter case. Differently with what hypothesized by the earlier literature on non-Keynesian fiscal effects, I find little evidence that these effects are asymmetric depending on the size of the shocks.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Graduate Institute of International and Development Studies Working Paper ; No. 06/2013

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Econometric and Statistical Methods and Methodology: General ; Interest Rates: Determination, Term Structure, and Effects ; International Policy Coordination and Transmission ; Economic Impacts of Globalization: Macroeconomic Impacts ; Forecasts of Budgets, Deficits, and Debt
• Thema: fiscal policy ; public debt ; fiscal multipliers ; non-Keynesian effects ; business cycle ; Finanzpolitik ; Schock ; Makroökonomischer Einfluss ; Multiplikator ; Öffentliche Schulden ; USA

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Sola, Sergio
• Ereignis: Veröffentlichung
• (wer): Graduate Institute of International and Development Studies
• (wo): Geneva
• (wann): 2012

Weitere Informationen

• Handle: http://hdl.handle.net/10419/77413
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ