On the International Dimension of Fiscal Policy

This paper analyzes the international dimension of fiscal policy in a small open economy framework. We consider the case in which the government finances its spending by levying distortionary taxes and issuing state‐contingent debt. While in a closed economy taxes are essentially invariant, in an open economy taxes can be as volatile as output. This is because the presence of a terms of trade externality introduces efficient fluctuations in the consumption–leisure wedge driven by movements in the real exchange rate. As a result, the optimal fiscal rule suggests that taxes should be varied to replicate these fluctuations.     

Financial Crisis, Fiscal Policy, and the 1995 GDP Contraction in Mexico

In 1995 Mexico experienced its largest contraction of gross domestic product (GDP) since the early twentieth century. I propose a simple mechanism to partially account for the contraction: the effects of changes in fiscal policy. The contraction of GDP was preceded by a financial crisis. The government responded by raising taxes and reducing spending. Using a model with taxation and government consumption, and the business cycle accounting methodology, I measure the impact of fiscal policy. Fiscal policy accounts for 20.7% of the fall in output.     

Optimal Fiscal Policy with Consumption Taxation

We characterize optimal fiscal policies in a general equilibrium model with monopolistic competition and endogenous public spending. The government can tax consumption, as alternative to labor income taxes. Consumption taxation acts as indirect taxation of profits (intratemporal gains of taxing consumption) and enables the policymaker to manage the burden of public debt more efficiently (intertemporal gains of taxing consumption). We show analytically that these two gains imply that the optimal share of government spending is higher under consumption taxation than with labor income taxation. Then, we quantify numerically each of these gains by calibrating the model on the U.S. economy.     

Identifying Discretionary Fiscal Policy Reactions with Real‐Time Data

We propose a method of identifying discretionary fiscal policy reactions using real‐time data. Automatic stabilizers should depend on true GDP, while discretionary fiscal policy is contingent on the information that policy makers have in real time. We can compute a real‐time measurement error by comparing the first release of GDP data with later revisions. Discretionary fiscal policy is influenced by this measurement error, whereas automatic fiscal policy is not. We use this identification approach to test the central identifying assumption of Blanchard and Perotti’s (2002) seminal structural vector autoregression (VAR). According to this assumption, fiscal policy makers do not react to GDP developments contemporaneously in a discretionary fashion. We find that government expenditure is adjusted upward if GDP growth in real time is lower than true GDP. This suggests that fiscal policy makers use short‐term funds to buy goods and services in response to their perception of GDP dynamics.     

为什么要继续实施积极财政政策

我国实施积极财政政策仅仅三个年头已经取得重大成效，这说明我国的宏观调控既取得了治理通货膨胀的经验，也取得了通货紧缩的初步经验，而实施积极财政政策是这种经验的重要方面。中央已以明确今年继续实行积极财政政策，这是根据当前政治经济形势做出的决策。现在伯问题是：为什么应当继续实施，为什么可以继续实施，以及通过理论的论证来解除对继续实施积极财政政策的一些疑虑问题。     

Fiscal Sustainability in a New Keynesian Model

Recent work on optimal monetary and fiscal policy in New Keynesian models suggests that it is optimal to allow steady‐state debt to follow a random walk. In this paper we consider the nature of the time inconsistency involved in such a policy and its implication for discretionary policymaking. We show that governments are tempted, given inflationary expectations, to utilize their monetary and fiscal instruments in the initial period to change the ultimate debt burden they need to service. We demonstrate that this temptation is only eliminated if following shocks, the new steady‐state debt is equal to the original (efficient) debt level even though there is no explicit debt target in the government's objective function. Analytically and in a series of numerical simulations we show which instrument is used to stabilize the debt depends crucially on the degree of nominal inertia and the size of the debt stock. We also show that the welfare consequences of introducing debt are negligible for precommitment policies, but can be significant for discretionary policy. Finally, we assess the credibility of commitment policy by considering a quasi‐commitment policy, which allows for different probabilities of reneging on past promises.     

Fiscal Multipliers at the Zero Lower Bound: The Role of Policy Inertia

The presence of the lagged shadow policy rate in the interest rate feedback rule reduces the government spending multiplier nontrivially when the policy rate is constrained at the zero lower bound (ZLB). In the economy with policy inertia, increased inflation and output due to higher government spending during a recession speed up the return of the policy rate to the steady state after the recession ends, which in turn damps the expansionary effects of the government spending during the recession via expectations. In our baseline experiment intended to capture the effectiveness of the American Recovery and Reinvestment Act of 2009, the output multiplier at the ZLB is 1.9 when the weight on the lagged shadow rate is zero, and 0.5 when the weight is 0.85.     

The Effectiveness of Fiscal Policy Over the Business Cycle: A CEE Perspective

In this article we analyze the effectiveness of fiscal policy—for a group of four Central and Eastern European countries. The recent literature shows that fiscal multipliers in the developed economies are higher during recession than expansion. So far, similar empirical analyses have been lacking for CEE countries. The results presented in this article show that fiscal multipliers in CEE countries differ with respect to the phase of the business cycle. Based on the SVAR methodology in which we allow for deterministic regime switching, we show that the government spending multipliers are significantly higher when the output gap is negative.     

On the Consequences of Pro‐Cyclical Fiscal Policy

There is widespread evidence that pro‐cyclical fiscal policies have been prevalent in developing countries and often in some industrial nations. It is therefore surprising that, in contrast to the wealth of studies on the sources of pro‐cyclical policy, potential consequences of such seemingly suboptimal policies have been largely ignored in the existing literature. By utilising a comprehensive set of indicators from 114 countries for 1950–2010, we aim to address the following important question: does it matter whether a country adopts a pro‐cyclical fiscal policy stance rather than a counter‐cyclical one? Our results produce a resounding ‘yes’ to this question. We find that fiscally pro‐cyclical countries have lower rates of economic growth, higher rates of output volatility and higher rates of inflation.     

Fiscal Policy and Occupational Employment Dynamics

We document substantial heterogeneity in occupational employment dynamics in response to government spending shocks in the United States. Employment rises most strongly in service, sales, and office (“pink-collar”) occupations. By contrast, employment in blue-collar occupations is hardly affected by fiscal policy. We provide evidence that occupation-specific changes in labor demand are key for understanding these findings. We develop a business-cycle model that explains the heterogeneous occupational employment dynamics as a consequence of composition effects due to heterogeneous employment changes across industries and occupation-specific within-industry employment shifts due to differences in the short-run substitutability between labor and capital services across occupations.     

Fiscal and Monetary Policy Coordination,Macroeconomic Stability,and Sovereign Risk Premia

In standard macroeconomic models, equilibrium stability and uniqueness require monetary policy to actively target inflation and fiscal policy to ensure long‐run debt sustainability. We show analytically that these requirements change, and depend on the cyclicality of fiscal policy, when government debt is risky. In that case, budget deficits raise interest rates and crowd out consumption. Consequently, countercyclical fiscal policies reduce the parameter space supporting stable and unique equilibria and are feasible only if complemented with more aggressive debt consolidation and/or active monetary policy. Stability is more easily achieved, however, under procyclical fiscal policies.     

试论稳健财政政策在扩大内需中的积极作用

财政政策在由“积极”转向“稳健”后,面对经济结构失衡、收入差距加大、消费市场疲软的现状,应通过调整财政收支结构、强化公共财政职能、加大社会性的公共支出、调节收入分配、改善并稳定居民消费预期、发挥城乡消费增长潜能等措施在扩大内需中发挥积极作用。     

Uncertainty and Fiscal Cliffs

Large pending fiscal policy changes, such as in the United States in 2012 or in Japan with consumption taxes, often generate considerable uncertainty. “Fiscal cliff” episodes have several features: an announced possible future change, a skewed set of possible outcomes, the possibility that implementation may not actually occur, and a known resolution date. This paper develops a model capturing these features and studies their impact. Fiscal cliff uncertainty shocks have immediate impact, with a magnitude that depends on the probability of implementation, which generates economic volatility. The possibility of fiscal cliffs lowers economic activity even in periods of relative certainty.     

Fiscal Positions and Government Bond Yields in OECD Countries

We examine the effect of fiscal positions, both the level of debt and the fiscal balance, on long‐term government bond yields in the Organisation for Economic Co‐operation and Development (OECD). To control for the endogenity of fiscal positions to the business cycle we utilize forward projections of fiscal positions from the OECD's Economic Outlook. In a panel regression over the period from 1988 to 2007, we find a robust and significant effect of fiscal positions on long‐term bond yields. Our estimates imply that the marginal effect of the projected deterioration of fiscal positions adds about 60 basis points to U.S. bond yields by 2015, with effects on other G‐7 bond yields generally being smaller.     

Panel Data Evidence on the Effects of Fiscal Policy Shocks in the EU New Member States

We identify fiscal policy shocks in the EU new member states using four different methods. We use panel data techniques to estimate the output response to these shocks. We find that investment and export growth increase after fiscal consolidation and decelerate after fiscal stimulus when the shocks are expenditure‐based. In contrast, private consumption does not respond to fiscal policy shocks. Expenditure‐based fiscal consolidations reduce wages, supporting the view that fiscal consolidation of such composition enhances the competitiveness and profitability of domestic enterprises. In contrast, we do not find evidence of fiscal shocks affecting households' confidence.     

我国财政政策和货币政策相互作用的实证研究——基于政策在价格决定中的作用

本文选取1980～2009年度数据为样本,利用MS-VAR模型检验我国财政政策和货币政策在价格决定中的作用区制。实证结果表明,在1980～1997年间,价格为货币政策主导区制;之后为财政政策主导区制。为检验该结果的稳健性,本文分别对李嘉图等式和财富效应进行分样本区间的实证分析。最后,本文选取1996～2010年的月度数据,利用MS-OLS模型检验财政政策和货币政策与价格的关系,发现我国互补的宏观经济政策在稳定物价上是有效的。     

Fiscal Activism and the Zero Nominal Interest Rate Bound

In an economy where the zero lower bound on nominal interest rates is an occasionally binding constraint and the government lacks a commitment technology, it may be desirable for society to appoint a policymaker who cares less about government spending stabilization relative to inflation and output gap stabilization than the private sector does. A policymaker of this type uses government spending more elastically to stabilize the economy. At the zero lower bound, the anticipation of aggressive fiscal expansions in future liquidity trap situations increases inflation expectations and lowers real interest rates, thereby mitigating the decline in output and inflation.     

Fiscal Policy Shocks in the Euro Area and the US: An Empirical Assessment*

We analyse the impact of fiscal policy shocks in the euro area as a whole, using a newly‐available quarterly data set of fiscal variables for the period 1981–2007. To allow for comparability with previous results on euro‐area countries and the US, we use a standard structural vector autoregressive (VAR) framework, and study the impact of aggregated and disaggregated government spending and net‐tax shocks. In addition, to frame euro‐area results, we apply the same methodology for the same sample period to US data. We also explore the sensitivity of the results to the inclusion of variables aiming to control for underlying financial and fiscal conditions. The main new findings are that: expansionary fiscal shocks have a short‐term positive impact on GDP and private consumption, with government spending shocks entailing, in general, higher effects on economic activity than (net) tax reductions; output multipliers to government expenditure shocks are of similar size in the euro area and in the US; the persistence of a fiscal spending shock is higher in the US than in the euro area, which appears to be related to military spending in the US; and fiscal multipliers have increased over the recent past in both geographical areas.     

Strengthening Post‐Crisis Fiscal Credibility: Fiscal Councils on the Rise – A New Dataset

Institutions that aim to constrain policy discretion in order to promote sound fiscal policies are once again at the forefront of the policy debate. Interest in fiscal councils – independent watchdogs active in the public debate – has grown rapidly in recent years. In this paper, we present the first cross‐country dataset summarising key characteristics of fiscal councils among International Monetary Fund members. The data document a surge in the number of fiscal councils since the 2008–09 economic and financial crisis, and also illustrate that well‐designed fiscal councils are associated with stronger fiscal performance and better macro‐economic and budgetary forecasts. Key features of effective fiscal councils include operational independence from politics, the provision or public assessment of budgetary forecasts, a strong presence in the public debate and the monitoring of compliance with fiscal policy rules.     

Fiscal Policy in a Currency Union at the Zero Lower Bound

This paper constructs a two‐country core–periphery New Keynesian model of a currency union to address the interaction between the objectives of regionally directed fiscal policy constrained by a single currency and the aggregate use of fiscal policy in face of the zero lower bound (ZLB) on policy interest rates. We identify an optimal path of aggregate and relative fiscal policy responses to a negative region‐specific demand shock. Our results show that (i) in a monetary union, the optimal policy response to an asymmetric reduction in demand concentrated in the periphery always entails a relative shift of fiscal expenditure toward the worse‐affected regions, (ii) though no aggregate fiscal response is required outside the ZLB, and (iii) optimal union‐wide fiscal policy is expansionary at the ZLB. Therefore, optimal policy always entails an expansion in the periphery at the ZLB, but the optimal fiscal response in the core regions can be either expansionary or contractionary depending on the parameters of the model. However, (iv) fiscal expansion in the core is warranted if the periphery cannot implement an expansion due to constraints on public spending.