Macroeconomic effects of government spending shocks: New narrative evidence from Canada

This paper examines the macroeconomic effects of government spending shocks in Canada for the period of 1949–2012. We construct a novel measure of news about exogenous government spending changes identified through the narrative approach. We use government documents, mostly the budget speech, to identify the size, timing, and principal motivation for all planned major federal government spending changes. To achieve identification, we consider those changes that are unrelated to the contemporaneous movements in the economy. The implied government spending multiplier estimates using our exogenous government spending news series are between 1.08 and 1.69.     

The incidence of taxes: A dynamic macroeconomic analysis

This paper analyzes the incidence of various tax changes using the intertemporal optimizing framework developed by Brock and Turnovsky. The model contains a reasonably complete specification of the corporate sector, in which firms have the choice of financial structure. It also allows for a range of government financial policies, although only one is considered in detail. Both the short-run and the long-run effects of changes in the personal income, capital gains, and corporate profit tax rates are analyzed. It is shown that the effects of tax changes (a) vary between the short and long run; (b) the effects of tax changes depend critically upon the financial structure adopted by forms; and (c) may also depend upon government financial policy.     

Government debt and private leverage: An extension of the Miller theorem

This paper shows how government financing decisions can influence the corporate decision to use debt or equity finance. In particular, it is shown that an increase in the stock of taxable government debt reduces the equilibrium quantity of corporate debt, and that an increase in the stock of tax-free government debt reduces the equilibrium quantity of corporate equity. The effects of inflation rate and tax rate changes are also considered.     

Tax reforms and the growth of government

This paper analyzes alternative approaches to measuring the effects of structural tax changes on government growth. It first reviews traditional time series approaches that attempt to disentangle the causal relationships between taxes and spending. It explains why these methods are incapable of uncovering the true causal links because of problems of observational equivalence and why institutional data can assist in making this determination. It then presents the methods and results from two alternative approaches and studies that analyze the effects of changes in tax structures on government growth. Both methods rely on econometric and institutional analysis. First version received: November 1997/Final version received: February 1999     

Deficit financing,liquidity, and the government budget constraint

This article presents a macroeconomic model in which government deficits are bond financed and the stock of bonds may affect both expected income and liquidity. If either of these effects exists, then comparative statics analysis requires the government budget to be balanced. Temporary divergences from a balanced budget and changes in the maturity structure of the government debt may be analyzed in terms of changes in the stock of bonds. It is shown that traditional fiscal and monetary policies may have a perverse effect; that to ensure effective policy, deficit financing and open market operations should be avoided; and that only policies involving a balanced budget or the financing of deficits or surpluses through changes in the stock of money should be undertaken.     

Changes in officials,total factor productivity fluctuation and government transformation: Evidence from Chinese prefecture cities

This paper investigates the interrelationships between changes in officials and total factor productivity (TFP) in China. The tournament competition for promotion results in a series of predicaments, such as excessive investment, duplicate construction, split regional markets and misallocations; these negative effects further inhibit local TFP. Local government transformation from driving investment to providing services can promote TFP. We use data from 230 prefecture cities between 1999 and 2013 and find the following: (a) in recent years with the process of government transformation, changes in officials have typically had less impact on TFP fluctuation than in previous years; (b) changes in officials mainly affect technology efficiency (TE) in TFP; and (c) the mediation model reveals that changes in officials' positions influences TFP through economic spillovers and tax competition. Overall, our paper offers novel evidence for the impact of government administration on productivity and technology development, which is significant for policy decisions during government transformation.     

Marketization and Poland's transfer payments

This study will examine the effects of Poland's transition on structural and policy changes in the primary categories of central government transfer payments, family assistance programs, pensions, and unemployment benefits. In this paper, changes in the structure of transfer payments for 1990 through 1997 will be quantified, and the relevant programs are described. This paper also examines the regulatory and policy framework of transfer payments. The welfare effects of transfer payment changes on Poland's different societal groups will be calculated, and certain policy recommendations are presented.     

Index-linked government bonds and the efficiency of monetary policy

This essay considers James Tobin's suggestion that the introduction of index-linked government bonds could make monetary policy more efficient. A macroeconomic model incorporating a given state of expectations and uncertainty is used to show that there should be no systematic difference between the effects of a given monetary policy shift in a regime in which government bonds are index-linked and in a regime in which government bonds are nominal. Monetary policy could have different effects in the two regimes when the model is complicated to allow the monetary policy shift to generate changes in the state of expectations and uncertainty; even so, it is impossible to say a priori in which regime monetary policy would be more efficient.     

Monetary and fiscal policy transmission in Poland

This paper combines a fiscal structural vector-autoregression (SVAR) with a monetary SVAR for the Polish transition economy. Data are constructed from scratch in order to account for features of the transition economy and for delays in implementing legislated government spending and tax changes (fiscal foresight). For monetary policy, we find no price puzzles in the combined SVAR. Also, fiscal foresight variables have no statistically significant effects. We calculate an initial government spending multiplier of 0.70, which later peaks at 1.61 for the cumulative multiplier. This multiplier is much larger than multipliers estimated in previous studies not combining fiscal and monetary policy, where they were found to be close to zero. On the other hand, the tax multiplier is generally near zero in our study. We demonstrate the importance of combining fiscal and monetary transmission mechanisms when assessing the effects of government macroeconomic policies.     

Political instability and economic growth

This paper investigates the relationship between political instability and per capita GDP growth in a sample of 113 countries for the period 1950 through 1982. We define political instability as the propensity of a government collapse, and we estimate a model in which such a measure of political instability and economic growth are jointly determined. The main result of this paper is that in countries and time periods with a high propensity of government collapse, growth is significantly lower than otherwise. We also discuss the effects of different types of government changes on growth.     

Discretionary fiscal policy and economic activity in Greece

This paper investigates the effects of discretionary fiscal policy changes on economic activity and its subcomponents in Greece in the period 2000–2011. Changes in government spending and net taxes have Keynesian effects. An increase in government consumption has the most pronounced positive effects on output growth, private consumption and non-residential investment, while it reduces residential investment. Cuts in the public investment programme crowd in private investment, but are associated negatively with the net exports ratio. Both indirect and direct tax hikes lower private consumption, private investment and output growth. However, higher direct taxes by lowering disposable income they reduce import demand, thus, improving the trade balance.     

Using time-varying transition probabilities in Markov switching processes to adjust US fiscal policy for asset prices

This paper tests for nonlinear effects of asset prices on the US fiscal policy. By modeling government spending and taxes as time-varying transition probability Markovian processes (TVPMS), we find that taxes significantly adjust in a nonlinear fashion to asset prices. In particular, taxes respond to housing and (to a smaller extent) to stock price changes during normal times. However, at periods characterized by high financial volatility, government taxation only counteracts stock market developments (and not the dynamics of the housing sector). As for government spending, it is neutral vis-a-vis the asset market cycles. We conclude that, correcting the fiscal balance and, notably, the revenue side for time-varying effects of asset prices provides a more accurate assessment of the fiscal stance and its sustainability.     

Determinants of household saving in the G-7 countries: recent evidence

This paper employs data from the last four decades to analyse major determinants of household saving for the Group of Seven (G-7) nations. Particular attention is paid to the effects of interest rates, government saving, and social security contributions. Regression analysis is used to control for the effects of both the level and changes in income per capita and inflation.     

Political Connections,Government Regulations and Risk-Taking — Evidence From China

Sufficient evidence suggests that enterprises under strong government regulations suffer the economic effects of political connections, which not only leads to competitive disadvantages and loss of innovation, but also less willingness to take risks. This paper explores the relationship between political connections and corporate risk-taking behavior in corporate governance. Specifically, in 2008, the Chinese government announced new policies to regulate government officials concurrently holding the positions of independent directors in firms. We sample publicly listed firms in the Chinese A-share market over the period of 2005–2010 and investigate changes in risk-taking behavior due to the new policies. Our findings indicate that a reduction in politically connected independent directors may encourage risk-taking behavior subject to the factors of state ownership, industry regulations, local government control, and corporate characteristics.     

Asymmetric output growth effects of government spending: Cross-sectional and panel data evidence

Using a model that accommodates asymmetric adjustments of output growth to changes in growth of government spending, the effects of aggregate and disaggregate government spending variables on output growth are examined. Both cross-section and panel regression estimations are conducted. Robustness of results to joint-endogeneity of output and government spending, alternative conditioning variables, and cointegration is investigated. Aggregate government spending appears to have positive output growth effects particularly in periods of below-trend growth in this variable. The government sector's productivity appears to be higher than non-government sector's productivity when spending growth is below-trend growth and only for non-OECD countries; no differences in sectoral productivities are detected for OECD countries. Government consumption spending has no significant output growth effects, but government investment spending has positive output growth effects particularly when its growth falls below its trend-growth; this favorable effect turns negative when government investment spending growth exceeds its trend-growth. Results are robust across alternative model specifications and estimation methods.     

THE LABOUR SUPPLY AND SAVINGS EFFECTS OF SUPERANNUATION TAX CHANGES*

This paper investigates the effects on labour supply, consumption and savings of a change in the superannuation tax structure, involving the taxation of contributions to a fund, pre‐retirement earnings of the fund, and the benefits received from the fund during retirement. The effects on lifetime plans of tax changes are investigated using a simple three‐period model in which the final period is retirement. The effects of unanticipated changes, requiring revisions to plans, are examined. Although the partial effects of particular tax changes are unambiguous, the effects of allowing for a government budget constraint mean that it is difficult to predict a priori how labour supply is likely to be affected. However, private savings unambiguously fall.     

Public consumption composition in a growing economy

This paper explores the role of the composition of public consumption within a three sector R&D growth model. A competitive industry supplies a homogeneous good and a monopolistic sector manufactures a composite commodity differentiated in many varieties, whose size can be increased through investment in R&D. We investigate the effects of changes in the level and in the composition of public consumption on the steady state and on the economy’s transitional dynamics. By varying the aggregate composition of demand, the government can effectively move resources away from the traditional industry to foster innovation. Welfare effects are also evaluated. We show that the composition of government consumption affects the entire time path of utility.     

A dynamic analysis of fiscal pressure and demographic transition

In this paper, the effects of demographic changes, particularly in the age structure of population, on government social expenditure is estimated. The results indicate that income elasticity of government social services is unitary in high income countries and above that level in low income countries, especially in education and welfare. The paper attempts also to forecast the pressure of these government outlays in four distinct countries characterized by different demographic parameters.     

Volatile Mining Revenues and State Government Budget Decisions

Mining royalties provide a volatile source of revenue for state governments in Australia. We explore the effects of changes in royalty revenue received by a state government on current-year budget decisions about expenditure, tax revenue and the budget surplus. The literature postulates different models for how lower-level government budget decisions respond to a revenue windfall from a higher level of government. Empirical evidence on these models over 1998–2019 provides strong evidence that over a half of a royalty windfall becomes a change in budget expenditure. Estimates of changes to tax revenues and the surplus are not definitive nor robust.