Searching for Non-Keynesian Effects of Fiscal Policy
IGIER Working Paper No. 136
27 Pages Posted: 14 Jan 1999
Date Written: September 1998
We search for the circumstances in which the response of national saving to fiscal policy contradicts conventional Keynesian predictions, using data from 18 OECD countries. The data suggest that non-Keynesian effects are associated with large and persistent fiscal impulses. Such responses can be traced to changes in taxes and transfers, more than to changes in government consumption, and are stronger for fiscal contractions than expansions. During large contractions an increase in taxes has no effect on national saving. High or rapidly growing public debt is not a good predictor of non-Keynesian effects. Finally, the composition of the fiscal impulse matters: the non-Keynesian effects of a large fiscal contraction are enhanced when this is carried out primarily by raising taxes.
JEL Classification: E21, E62, H31
Suggested Citation: Suggested Citation