Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization and Emu

CEPR Discussion Paper Series No. 1984

Posted: 4 Feb 1999

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

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Date Written: October 1998

Abstract

This paper looks at theoretical and empirical issues associated with the operation of fiscal stabilizers within an economy. It argues that such stabilizers operate most effectively at a national, rather than local, level. As differing cycles across regions tend to offset each other for the country as a whole, national fiscal stabilizers are not associated with the same increase in future tax liabilities for the region as local ones. Accordingly, the negative impact from the Ricardian effects associated with these tax liabilities is smaller. Empirical work on data across Canadian provinces indicates that local stabilizers are only one-third to one-half as effective as national stabilizers which create no future tax liability.

JEL Classification: E63, H31, H77

Suggested Citation

Bayoumi, Tamim, Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization and Emu (October 1998). CEPR Discussion Paper Series No. 1984. Available at SSRN: https://ssrn.com/abstract=141454

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
United States
202-623-6333 (Phone)
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

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