Consumption Smoothing Through Fiscal Policy in OECD and EU Countries

36 Pages Posted: 11 Jul 2000 Last revised: 27 May 2008

See all articles by Adriana Arreaza

Adriana Arreaza

Brown University

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

Date Written: January 1998

Abstract

We measure the amount of smoothing achieved through various components of the government deficit in EU and OECD countries. For EU countries, at the 1-year frequency percent of shocks to GDP are smoothed via government consumption, 18 percent via transfers percent via subsidies, while taxes provide no smoothing. The results for OECD countries are similar. Government transfers provide more smoothing of negative than of positive shocks among EU countries. There seems to be no trade-off between high government deficits in a country and the ability to smooth consumption. We find that in countries where there is delegation' of power or where fiscal targets are negotiated effectively by coalition members consumption smoothing via government consumption and government transfers is considerably higher. We interpret this finding as evidence that effective budgetary institutions can accomplish efficient consumption smoothing via government deficit spending and lower average deficits.

Suggested Citation

Arreaza, Adriana and Sorensen, Bent E. and Yosha, Oved, Consumption Smoothing Through Fiscal Policy in OECD and EU Countries (January 1998). NBER Working Paper No. w6372. Available at SSRN: https://ssrn.com/abstract=226121

Adriana Arreaza

Brown University

Box 1860
Providence, RI 02912
United States

Bent E. Sorensen (Contact Author)

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

N/A

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