Fiscal Policy, Profits, and Investment

Alesina, Alberto; Ardagna, Silvia; Perotti, Roberto; Schiantarelli, Fabio

doi:10.1257/00028280260136255

Cited by 483 publications

(445 citation statements)

References 33 publications

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“…The consumption function (1) gives consumption according to the standard intertemporal consumption model, where there is a desire to smooth consumption, which therefore is determined by the present value of disposable income.…”

Section: Ricardian Equivalencementioning

confidence: 99%

“…This link to expectations may cause non-linearities or state dependencies in the effects of fiscal policy, that is, the effects of fiscal policy intervention may depend critically on the initial policy situation. To see how this can arise, consider first a case where Ricardian Equivalence holds implying that the expected present value of public consumption is influencing private consumption, cf.. (1). Assume that public consumption follows a stochastic process with upward drift, and that it fluctuates within an upper and lower bound (Bertola and Drazen (1993)).…”

Section: Expectationsmentioning

confidence: 99%

“…Somewhat surprisingly, fiscal policy has not attracted as much interest, and recent literature devotes very scant attention to fiscal stabilization policy. 1 This neglect of fiscal policy is surprising for at least two reasons. First, policy makers are concerned about the role of fiscal policy and often resort to fiscal policy changes in efforts to stabilize the economy.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Is there a Role for an Active Fiscal Stabilization Policy?

Andersen

2005

CESifo Economic Studies

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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. Abstract This paper discusses the need and scope for an active fiscal stabilization policy. It is argued that the effectiveness of fiscal policy as a short run stabilizer does not depend on the long run multipliers of (balanced budget) fiscal policies. To the extent that activity can be affected by aggregate demand in the short run, there is a case for a fiscal stabilization policy in terms of temporary variations in taxes or public consumption contingent on the state of the economy. The effectiveness of fiscal policy is supported by empirical evidence. However, an appropriate policy intervention depends both on the nature of the shock and the structure of the economy. There are thus fundamental information problems in pursuing discretionary fiscal policies on top of political economy concerns, and fiscal fine-tuning is not to be recommended. Automatic stabilizers do not to the same extent suffer from these problems, but their strength is not by design but the net result of other policy considerations. Hence, there is a need to consider the structure and size of automatic stabilizers. Terms of use: Documents inJEL Code: E6.

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Section: Ricardian Equivalencementioning

confidence: 99%

Section: Expectationsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Is there a Role for an Active Fiscal Stabilization Policy?

Andersen

2005

CESifo Economic Studies

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“…Their empirical findings attested to a clear negative association between unit labour costs and profit margins. Alesina et al (2002) examined the effects of various fiscal variables on profits, proxied by gross profits per unit of capital in the business sector. They found that all revenues and spending variables exert a negative impact on profits with government wages having the largest negative effect (mostly through their influence on private sector wage outcomes).…”

Section: Empirical Setupmentioning

confidence: 99%

'Excessive' wages and the return on capital

Katsimi¹,

Kalyvitis²,

Moutos³

2011

Cambridge Journal of Economics

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Received wisdom suggests that "excessive" wages, defined as the part of real wages that do not follow labour productivity developments, are adversely associated with the return on capital. This paper argues that excessive wages and profits are better thought as responses to changes in the economic, political and institutional environment and there is no a priori reason for a negative relationship between them. We thus investigate whether there is a causal effect of excessive wages on capital return using aggregate panel data for 19 OECD countries for the period 1970-2000. We account for the endogeneity of excessive wages by exploiting variations in institutional and labour market characteristics. Our main finding is that excessive wages do not affect the return on capital. This result remains robust to alternative empirical specifications and to alternative definitions of profitability and excessive wages, and questions the standard advice by international economic organizations on wage moderation. JEL classification: E24, E25

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“…The evidence is more mixed, though, in emerging market economies where procyclical spending bias, narrow automatic stabilizers and limited credit access have constrained governments' ability to provide fiscal stimulus during adverse economic periods (Kaminsky, Reinhart and Vegh 2004). Initial fiscal conditions generally play a key role in crisis responses, in both advanced and emerging economies (Alesina et al 2002).…”

Section: The Sustainable Growth Of Public Debtmentioning

confidence: 99%