Boosting Confidence: Is There a Role for Fiscal Policy?
25 Pages Posted: 21 Jul 2022
Date Written: April 1, 2010
Abstract
This paper investigates the widely held view that expansionary fiscal policy can boost consumer and business confidence, which will stimulate private spending and sustain economic activity. We find evidence in favor of this conjecture, i.e., cuts in direct taxes generate a positive effect on consumer and business confidence, while the same applies in cases of higher non-wage government consumption. However, higher government wage bills and government investment reduce confidence, possibly because they entail a permanent increase in the size of the public sector, which would have to be financed by higher future taxes.
Keywords: Fiscal Policy, Consumer Confidence, Business Confidence, Fiscal Stimulus of Confidence
JEL Classification: E62, H31, H32
Suggested Citation: Suggested Citation