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

29 Pages Posted: 15 Feb 2006

See all articles by Tamim Bayoumi

Tamim Bayoumi

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

Paul R. Masson

International Monetary Fund (IMF) - Research Department; The Brookings Institution

Multiple version iconThere are 2 versions of this paper

Date Written: August 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 1/3 to ½ as effective as national stabilizers that create no future tax liability.

Keywords: Fiscal Stabilization, Levels of Government, Ricardian Equivalence

JEL Classification: E63, H31, H77

Suggested Citation

Bayoumi, Tamim and Masson, Paul R., Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization, and Emu (August 1998). IMF Working Paper, Vol. , pp. 1-29, 1998. Available at SSRN: https://ssrn.com/abstract=882644

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Paul R. Masson

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

The Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
202-797-6278 (Phone)
202-797-2968 (Fax)

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