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How best to measure discretionary fiscal policy?: assessing its impact on private spending

Agnello, Luca, Furceri, Davide and Sousa, Ricardo J. (2013) How best to measure discretionary fiscal policy?: assessing its impact on private spending. Economic Modelling, 34. pp. 15-24. ISSN 0264-9993

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Identification Number: 10.1016/j.econmod.2012.10.020

Abstract

We develop a novel empirical approach to assess the effect of discretionary fiscal policy on private spending consisting of three stages: 1) extract the discretionary component of fiscal policy by estimating a fiscal policy rule; 2) use the residuals of the first-stage regression to investigate the existence of crowding-in and/or crowding-out effects both in the short and the medium term; and 3) condition the response of private spending on a set of country characteristics. We find that an expansion in discretionary fiscal policy boosts growth in the short term, but is detrimental in the medium term. In addition, the empirical findings suggest that the effect of discretionary fiscal policy on private spending varies across regions and income groups, and depends on countries' economic characteristics such as the level of economic development, trade openness, government and country size.

Item Type: Article
Official URL: http://www.journals.elsevier.com/economic-modellin...
Additional Information: © 2013 Elsevier B.V.
Divisions: Financial Markets Group
Subjects: H Social Sciences > HJ Public Finance
Sets: Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 24 Jan 2013 11:11
Last Modified: 20 Sep 2019 01:40
URI: http://eprints.lse.ac.uk/id/eprint/48064

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