Fundamental Determinants of the Effects of Fiscal Policy

Botman, Dennis P.  J.; Kumar, Manmohan

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Fundamental Determinants of the Effects of Fiscal Policy

IMF Working Paper No. 06/72

48 Pages Posted: 26 Apr 2006

See all articles by Dennis P. J. Botman

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department

Manmohan Kumar

International Monetary Fund (IMF) - Research Department

There are 2 versions of this paper

Date Written: March 2006

Abstract

We explore the underlying determinants of the macroeconomic effects of fiscal policy and tax and social security reform using the Global Fiscal Model (GFM). We show that the planning horizon of consumers, access to financial markets, and the elasticity of labor supply, as well as the characteristics of utility and production functions, and the degree of competition are all critical for determining the impact of fiscal policy. Four topical fiscal policy issues, for a representative large and small economy, are examined: the effects of changes in government debt; higher government spending; tax reform; and privatization of retirement savings.

Keywords: Government debt, spillover effects, government spending, tax reform, privatizing retirement saving, non-Ricardian model

JEL Classification: E62, F41, F42, H30, H55, H62

Suggested Citation: Suggested Citation

Botman, Dennis P. J. and Kumar, Manmohan, Fundamental Determinants of the Effects of Fiscal Policy (March 2006). IMF Working Paper No. 06/72, Available at SSRN: https://ssrn.com/abstract=898733