A set of estimated fiscal rules for a cross-section of countries: Stabilization and consolidation through which instruments?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. A set of estimated fiscal rules for a cross section of countries: Stabilization and consolidation through which instruments? * Terms of use: Documents in Christopher Phillip ReicherAbstract: This paper provides a set of detailed estimated fiscal reaction functions for a panel of twenty industrialized countries, and it discusses commonalities and differences with regard to systematic fiscal policies across countries. In general, the countries in the panel adjust tax revenues strongly in response to the public debt, and they adjust tax revenues and transfer payments, but, interestingly, not tax rates, strongly in response to output fluctuations. Some countries such as Germany appear to adjust government consumption and investment relatively strongly in response to the public debt, while the United States adjusts capital tax rates relatively strongly. In general, an increased emphasis in the theoretical literature on the effects of procyclical tax revenues and countercyclical transfer payments as automatic stabilizers may be warranted.Keywords: Fiscal policy, fiscal rule, deficits, taxes, government purchases, transfer payments.JEL classification: E62, E63, H20, H62. Abstract This paper provides a set of detailed estimated …scal reaction functions for a panel of twenty industrialized countries, and it discusses commonalities and di¤erences with regard to systematic …scal policies across countries. In general, the countries in the panel adjust tax revenues strongly in response to the public debt, and they adjust tax revenues and transfer payments, but, interestingly, not tax rates, strongly in response to output ‡uctuations. Some countries such as Germany appear to adjust government consumption and investment relatively strongly in response to the public debt, while the United States adjusts capital tax rates relatively strongly. In general, an increased emphasis in the theoretical literature on the e¤ects of procyclical tax revenues and countercyclical transfer payments as automatic stabilizers may be warranted. Christopher Phillip ReicherEmail: christopher.reicher@ifw-kiel.de; Telephone: +49 431 8814 300.I thank Garey Ramey, Valerie Ramey, Henning Bohn, and Roger Gordon for their helpful advice on a much earlier version of this project. All errors are mine.JEL: E62, E63, H20, H62.

The Fiscal Policy Response to Public Debt in Developing Countries

“…First, countries respond along both the tax and spending margins and second, there is a tendency for larger responses along the spending margin, particularly when there is tax competition. Likewise, Reicher () estimates the reaction of different categories of government spending, taxes, and transfers to debt‐to‐GDP for a panel of 20 industrial countries. In contrast to Krogstrup (), he finds that in general, the countries studied increase their primary balance in response to debt and that much of this increase comes through higher taxation with much smaller adjustments in government spending…”

Fiscal policy in a small open economy

“…Examples of fiscal targets in the SGP include deficits not exceeding three per cent of gross domestic product (GDP) and a debt to GDP ratio below sixty per cent. Until recently, this area of research remained largely underexplored (Kumhof and Laxton (2013), Kliem and Kriwolouzky (2014), Leeper, Plante andTraum (2010), andReicher (2014)) as the discipline remained focused on the interest rate rule in monetary policy.…”

“…The revival of activist fiscal policy has reenergized research on systematic fiscal policy and lead to important developments in the theoretical and empirical literature exploring the efficacy of numerical fiscal rules. Most of the research is motivated by governments' search for more sustainable fiscal frameworks in the post-recession environment that emphasize systematic fiscal policies (Budina, Kinda, Schaechter and Weber (2012), Corsetti, Meier, and Müller (2012), and Reicher (2014)). As public sector financial positions in many countries have deteriorated significantly, policymakers in these countries have been left with the challenge of dealing with growing deficits and national debts.…”

Public Wages, Public Employment, and Business Cycle Volatility: Evidence from U.S. Metro Areas

“…Our results also help to partially reconcile the search and matching literature with the business cycle stabilization literature. For instance, Galí (1994), Fatás and Mihov (2001), Andrés, Doménech, and Fatás (2008), Reicher (2014), and others find that government spending (and especially government consumption, of which the government wage bill is the largest part) is negatively correlated with volatility in both private output and overall output. However, in a theoretical context, it is difficult but possible to generate a stabilizing effect of government consumption on private output.…”