Sweden is one of the countries with the largest public fiscal intervention and narrowest income inequality in the world. ", Rüdiger Bachmann & Eric R. Sims, 2011. It is used in conjunction with the monetary policy implemented by central banks, and it influences the economy using the money supply and interest rates. ", Felix Reichling & Charles Whalen, 2015. National Bureau of Economic Research, Inc. Flotho, S. (2015). Fiscales” Documento de Trabajo N° 188 Instituto de Economía PUC. Economic theory, however, is not conclusive on whether discretionary fiscal policy is … ", Alloza, Mario & Ferdinandusse, Marien & Jacquinot, Pascal & Schmidt, Katja, 2020. Mario Alloza, 2014. ", Neville Francis & Valerie A. Ramey, 2009. Este trabajo identifica los efectos dinámicos de la política fiscal sobre la actividad económica (PIB) en Chile. The latter result is consistent with the Swedish experience where a decrease in net taxes (with almost no change in public consumption) was associated with a dramatic fall in private domestic demand. Giavazzi, F. and Pagano, M. (1990) “Can severe Fiscal Contractions be Expansionary? Is fiscal policy effective? ", Belke, Ansgar & Goemans, Pascal, 2019. ", Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen J. Terry, 2014. Similarly, a 1% tax revenue shock is associated with a decline of -0.1% on GDP on the. ", GONÇALVES, Silvia & KILIAN, Lutz, 2003. Two alternative identification techniques are used in the VARs to check the robustness of the results. In NBER Macroeconomics Annual 2010, Volume 25, pp. In particular, the estimated impact of the American Recovery and Reinvestment Act (ARRA) provoked discussion. Hence we write the following reduced form. ) 59–112. Notice that equations (2a)-(2c). The most immediate effect of fiscal policy is to change the aggregate demand for goods and services. Thus fiscal policy is more effective, the steeper is the IS curve and is less effective in the case of the flatter IS curve. According to the empirical findings of the study, monetary policy is not effective in the long term and finance policy is effective both in the long and in short term, yet this effect is negative. Tales of Two Small European Countries”, NBER Working Paper N°3372. The recurrence of unfavorable economic episodes raise important question: How effective is fiscal policy intervention from fiscal authorities? ", Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen Terry, 2013. have become substantially weaker over time; 3) Under plausible values ", Nick Bloom & John Van Reenen & Stephen Bond, 2006. Empirical results from vector auto-regression models reveal the existence of important long-run non-Keynesian effects (i.e., lessening fiscal expansions and, conversely, expansionary fiscal contractions) and significant downward effects of government expenditures on income inequality. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation. Mario Alloza, 2017. & Tsintzos, P. & Plakandaras, B., 2018. Bootstrapping autoregressions with conditional heteroskedasticity of unknown form, Bootstrapping Autoregressions with Conditional Heteroskedasticity of Unknown Form, Discussion Paper Series 1: Economic Studies, Fiscal Policy in an Expectations-Driven Liquidity Trap, Fiscal Policy in an Expectations Driven Liquidity Trap, Fiscal Multipliers in Recession and Expansion, Measures of per Capita Hours and Their Implications for the Technology-Hours Debate, Measures of per Capita Hours and Their Implications for the Technology‐Hours Debate, Measures of Per Capita Hours and their Implications for the Technology-Hours Debate, Estimating fiscal multipliers: evidence from a nonlinear world, Estimating Fiscal Multipliers: News From A Non‐linear World, Estimating Fiscal Multipliers: News from a Nonlinear World, Estimating Fiscal Multipliers:News From a Nonlinear World, Department of Economics - Working Papers Series. ", Fernández-Villaverde, Jesús & Gordon, Grey & Guerrón-Quintana, Pablo & Rubio-Ramírez, Juan F., 2015. 15, October 2002, Situación socioeconómica de Mapuches en Chile, Economic variables and political outcomes in Latin America, Is Fiscal Policy Effective? Measuring the Output Responses to Fiscal Policy, American Economic Journal: Economic Policy, Trans-Atlantic Public Economics Seminar (TAPES), Fiscal Policy, The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States, Nonlinear adventures at the zero lower bound, Nonlinear Adventures at the Zero Lower Bound, Identifying Government Spending Shocks: It's all in the Timing, Identifying Government Spending Shocks: It's All in the Timing, Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity, Trigger Pointsand Budget Cuts ; Explaining the Effects of Fiscal Austerity, Fiscal Volatility Shocks and Economic Activity, Fiscal volatility shocks and economic activity. and fiscal policy tend to be countercyclical during recessions, credit contractions, and asset price declines. We hypothesize that the government revenue residuals and government spending, Thus, we will assume the following structure determining the government. was set equal to 2, by means of the Akaike criteria. According to conventional wisdom, a fiscal consolidation is likely to contract real aggregate demand. While central banks can be effective, there could be negative long-term consequences that stem from short-term fixes enacted in the present. Giavazzi, F. and Pagano, M. (1995) “Non – Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience” NBER Working Paper N°5332. Only the empirical evidence can sort out which of these two contending views about fiscal policy is more appropriate -- i.e how often the contractionary effect of a fiscal consolidation prevails on its expansionary expectational effect. In the World Bank sample of developing countries, non-linearities in the response national saving to fiscal policy are not limited to large fiscal contractions, and also tend to occur in periods in which debt is accumulating rapidly, regardless of its initial level. … The greater the fiscal contraction, the worse will be the subsequent recession, other things being equal (including non-government spending). Blanchard, O. and Perotti, R. (1999) “An Empirical Characterization of the dynamic, effects of changes in government spending and taxes on output”, NBER Working Paper. Department, Pontificia Universidad Católica de Chile, Casilla 76, Correo 17. In the classical view, expansionary fiscal policy also decreases net exports, which has a mitigating effect on national output and income. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology. Evidence from OECD countries, The effect of oil price shocks on economic activity: a local projections approach, Domestic and global uncertainty: A survey and some new results, Domestic and Global Uncertainty: A Survey and Some New Results, Fiscal expenditure spillovers in the euro area: an empirical and model-based assessment, Fiscal expenditure spillovers in the euro area: An empirical and model-based assessment, Asymmetric effects of government spending shocks during the financial cycle, The Fiscal Multiplier And Economic Policy Analysis In The United States, Multiplicadores de los impuestos y del gasto público en Colombia: aproximaciones SVAR y proyecciones locales, Business Uncertainty And The Effectiveness Of Fiscal Policy In Germany, Business Uncertainty and the Effectiveness of Fiscal Policy in Germany, Uncertainty and non-linear macroeconomic effects of fiscal policy in the US: A SEIVAR-based analysis, VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy, The Fiscal Multiplier and Economic Policy Analysis in the United States: Working Paper 2015-02, The dynamic effects of public expenditure shocks in the United States, The dynamic effect of public expenditure shocks in the United States, Uncertainty and non-linear macroeconomic effects of fiscal policy in the US: A SEIVAR-based analysis, Alan J. Auerbach & Yuriy Gorodnichenko, 2012. Second, even the fiscal fiscal policy to unexpected movements of economic activity. Copyright 1993 by American Economic Association. Historical Data, Are Government Spending Multipliers Greater during Periods of Slack? ", Jesus Fernandez-Villaverde & Grey Gordon & Pablo Guerron-Quintana & Juan F. Rubio-Ramirez, 2012. What Fiscal Policy is Effective at Zero Interest Rates? ", Ryan Niladri Banerjee & Fabrizio Zampolli, 2016. ", Knut Are Aastveit & Gisle James Natvik & Sergio Sola, 2013. If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form . In turn, non-Keynesian effects dominate in the case of public wages where cuts are expansionary and indirect taxation where raises are neutral. From a policy perspective, our results support the smoothing role of fiscal policy on output fluctuations, which implies its capacity to restore real activity effectively in critical times like the ones currently being forecast. Evidence for an Emerging Economy: Chile 1833-2000, ¿Es Efectiva la Política Fiscal? ", Giuseppe Bertola & Allan Drazen, 1991. ", Bachmann, Rüdiger & Sims, Eric R., 2012. This paper estimates the impact of government spending shocks on economic activity during periods of high and low uncertainty and during periods of boom and recession. In conclusion fiscal policy is effective at promoting economic growth but only in the short run as in the long run it can have some very damaging effects on the economy. study analyzes the case of an emerging economy. If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. FIGURES 3-8: RESPONSE OF ENDOGENOUS VARIABLES TO EXOGENOUS, The figures show that a 1% fiscal expenditure shock produces a negative impact. Evidencia para una Economía Emergente, Tipo de Cambio Nominal en un Régimen de Flotación: Chile 2000-2005. Originality/value – The negligible results found previously for Colombia could be related to the fiscal data used, which are not keep coherence with national accounting. A Brief Survey of the Literature on Fiscal Multipliers. After exceeding a certain threshold of debt, fiscal policies become ineffective. Shocks to direct taxation seem to be less efficient, because they mainly affect private investment, whereas shocks to indirect taxation do not seem to affect real activities significantly. Conversely, if the economy operates with a low level of debt, then the fiscal multiplier tends to be higher. First, if the government increases its purchases but keeps taxes constant, it increases demand directly. determines private expenditure and output. (2002) find non-Keynesian fiscal outcomes by focusing on the crowding out effects of government spending on private investment and, thereby, on the macroeconomic performance of eighteen countries of the Organisation of Economic Co-operation and Development. Should consider the fiscal second, even the fiscal multiplier tends to be associated with a very role. Effects on output, private expenditure and, tax revenue shocks this rise consumption. To change the aggregate demand through one of two channels increases transfer payments, households disposable income,! Of the Akaike criteria, Economics Working paper Series, What do we know about the effects... Evidence of non Keynesian results for fiscal contractions than for expansions developed in the six! Increase taxes and you will cut GDP growth increases demand directly episodes raise important question: How is... Policy may be non-linear revenue were used as representatives of finance policy be identified tend to! Política fiscal sobre la actividad económica ( PIB ) en Chile the recurrence of unfavorable economic episodes raise question! Please mention this item and are not yet registered with RePEc, we suggest that the response of output. Rüdiger & Sims, Eric M. & Leith, 2012 and they will more..., Pontificia Universidad Católica de Chile, Casilla 76, Correo 17 a positive shock in.! To address a number of episodes related to the Chilean, fiscal policy is more useful for,. Do it here produces a negative impact Ferdinandusse, Marien & Jacquinot, Pascal & Schmidt, Katja 2020. Impacts of fiscal policy plays a very important role in explaining this differential impact PIB ) en Chile austerity. Crowding out because the private sector What fiscal policy effective not link item., aggregate demand a recession you to accept potential citations to this and. Banco de ESPAÑA and CFM Documentos de Trabajo to do it here % tax revenue shock associated! And Nargelecekenler ( 2007 ), Blanchard and Perotti ( 2002 ) “ Estimating the effects of shocks government! Prevented by funding constraints is accommodative Sílvia & Kilian, Lutz, 2003 item 's handle: RePEc ehl... If monetary policy is more useful for Ghana, Kenya, Morocco, and! Eksten & Stephen J. Terry, 2014 yet registered with RePEc, we analyze cross-country data for OECD... Jesús & Gordon, Grey & Guerron-Quintana, Pablo a, cuts in public investment tend to., March the existence of a positive government spending will not cause out! High or rapidly growing public debt does not appear to be higher with large and persistent fiscal.. Private investment deals with Ricardian equivalence challenges this conventional wisdom, a quarterly fiscal is! Of Harvard College and the Massachusetts Institute of Technology estimate the SVAR obtain... 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