Identifying Fiscal Shocks and Policy Regimes in OECD Countries
52 Pages Posted: 26 Jan 2004
Date Written: October 2003
The aim of this paper is twofold. First, for West Germany, France, Italy and US, we econometrically select within a SVAR model some fiscal policy regimes, i.e. a "set of rules" for the implementation of fiscal policies. Second, we identify the fiscal policy shocks related to different categories of expenditure and taxation, and simulate their effects on economic activity. Empirical evidence shows that in the selected European countries fiscal decisions mainly target government expenditure while a clear-cut distinction between spending and taxation regimes is not found in the US. Both shocks on government spending and taxation generate keynesian responses of output, although fiscal multipliers are quite low (output reacts by 0.1 percent quarterly on average at most to a 1 percentage change in the expenditure or revenue ratio). In Italy, the US and France, the strongest effect on output is produced by shocks on government expenditure on wages and transfers.
Keywords: SVAR, Fiscal policy
JEL Classification: E62, H30
Suggested Citation: Suggested Citation