Fiscal Shocks and The Sectoral Composition of Output

Bénétrix, Agustín S.; Lane, Philip R.

doi:10.1007/s11079-009-9161-5

Cited by 43 publications

(33 citation statements)

References 38 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…3 While the Ramey-Shapiro narrative approach suggests that military shocks, which are heavily concentrated in the manufacturing sector, are intensive in traded goods, our study reveals that government spending shocks, identified on the basis of Blanchard-Perotti assumption, lead to a sharp increase in non traded output relative to traded output. This finding is in line with estimates documented by Monacelli and Perotti [2008] and Benetrix and Lane [2010], which show that an increase in government spending disproportionately benefits the non traded sector. In contrast to the authors who restrict their attention to sectoral output effects, we highlight the changes in sectoral shares in labor and real GDP.…”

Section: Introductionsupporting

confidence: 92%

See 1 more Smart Citation

Imperfect mobility of labor across sectors and fiscal transmission

Cardi

Restout

Claeys

2020

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

Our paper investigates the impact of government spending shocks on relative sector size and contrasts the effects across countries. Using a panel of sixteen OECD countries over the period 1970-2007, our VAR evidence shows that a rise in government consumption i) increases the share of non tradables in labor and real GDP while lowering the share of tradables, and ii) causes a significant increase in non traded wages relative to traded wages. While the first finding reveals that the non traded sector is more intensive in the government spending shock and experiences a labor inflow that increases its relative size, the second finding suggests the presence of labor mobility costs preventing wage equalization across sectors. These labor mobility costs appear to play a key role in determining changes in relative sector size across time and space. Whilst the responses of intersectoral labor reallocation and sectoral shares are found empirically to decline over time, the share of non tradables increases more in countries where the degree of labor mobility across sectors is higher. To account for our evidence, we develop an open economy version of the neoclassical model with tradables and non tradables. Our quantitative analysis shows that the open economy model is successful in replicating the responses of sectoral output shares to a fiscal shock, as long as we allow for a difficulty in reallocating labor across sectors along with adjustment costs to capital accumulation. Finally, calibrating the model to country-specific data, we are able to generate a cross-country relationship between the degree of labor mobility and the responses of sectoral output shares which is similar to that in the data. We are grateful to Agustin Benetrix for sharing RATS codes and to Luisito Bertinelli who provided invaluable help at different stages of the paper. We thank Benjamin Born, Falko Juessen, Gernot Müller for providing us with the dataset they constructed containing forecasts for government spending and Laura González Cabanillas for the dataset covering time series for the budget balance-GDP ratio forecast. We are grateful to Francisco Alvarez-Cuadrado, Christophe Hurlin, Stefan Schubert, Stephen Turnovsky for very helpful comments. We have also benefited from suggestions by participants at seminars and conferences. Obviously, any remaining shortcomings are our own. ,where 0 < ϕ J < 1 is the weight of the investment traded input and φ J corresponds to the elasticity of substitution between traded good and non traded good inputs.Since we focus on the long-run equilibrium, the tilde is suppressed for the purposes of clarity. the traded good and the non traded good according to a constant-returns-to-scale function which is assumed to take a CES form:,where ι is the weight of the investment traded input (0 < ι < 1) and φ J corresponds to the intratemporal elasticity of substitution in investment between traded and non traded inputs. The index J T is defined as a CES aggregator of home-produced traded inputs, J H , and foreign produced t...

show abstract

Section: Introductionsupporting

confidence: 92%

“…14 This definition corresponds to that implicitly adopted by Monacelli and Perotti [2008] and Benetrix and Lane [2010]. 15 To derive the second definition, we use the fact thatŶ (t) = dG(t)/Y (by keeping private demand fixed) along with (4) and ν Y,jŶ j (t) = ω G j (dG(t)/Y ).…”

Section: Var Specificationmentioning

confidence: 99%

Imperfect mobility of labor across sectors and fiscal transmission

Cardi

Restout

Claeys

2020

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

show abstract

“…6 The substantial increase in non traded output following a rise in government spending is in line with the evidence documented by Benetrix and Lane [2010] who find that the relative size of the non traded sector increases disproportionately after a temporary fiscal shock. 7 The unit cost function is a weighted average of the wage rate and the rental rate of capital.…”

Section: Introductionsupporting

confidence: 70%

Fiscal Shocks in a Two-Sector Open Economy With Endogenous Markups

Cardi

Restout

2014

Macroecon. Dynam.

View full text Add to dashboard Cite

We use a two-sector neoclassical open economy model with traded and non-traded goods and endogenous markups to investigate the effects of temporary fiscal shocks.One central finding is that theory can be reconciled with evidence once we allow for endogenous markups and assume that the traded sector is more capital intensive than the non-traded sector. More precisely, while both ingredients are essential to produce the real exchange rate depreciation, only the second ingredient is necessary to account

show abstract

“…There are also a number of empirical studies that find that the EMU led to an increase in expansionary and electorallymotivated fiscal policy (Buti and Van Den Noord, 2004;Efthyvoulou, 2012;Mink and De Haan, 2006), as well as a rise in overly optimistic budget deficit forecasts aimed at misleading electorates, especially in the run up to elections (Brück and Stephan, 2006). In turn, there is also robust evidence that fiscal policy expansions in EMU countries result in a deterioration in the trade balance (Beetsma and Giuliodori, 2010;Bénétrix and Lane, 2010).…”

Section: Literature Review: the Emu And Current Account Balancesmentioning

confidence: 99%

Estimating the effect of the EMU on current account balances: A synthetic control approach

Hope

2016

European Journal of Political Economy

View full text Add to dashboard Cite

The European sovereign debt crisis wrought major political and economic damage on the European Monetary Union (EMU). This led to a reassessment of the pre-crisis period of economic growth and stability in the EMU, shifting attention to the macroeconomic imbalances that emerged between member states, especially those in current account balances. This paper uses macroeconomic data on OECD economies and a new statistical approach for causal inference in observational studies-the synthetic control method-to estimate the effect of the EMU on the current account balances of individual member states. This 'counterfactuals' approach provides strong evidence that the introduction of the EMU was responsible for the divergence in current account balances among member states in the run-up to the euro crisis. The results suggest that the EMU effect operated through multiple channels and that fundamental changes to the institutional framework of the EMU may be required to safeguard the currency union against a reemergence of dangerous external imbalances in the future.

show abstract

Fiscal Shocks and The Sectoral Composition of Output

Abstract: Government spending shocks, Tradables, Nontradables, European Monetary Union, Panel VAR, E24, E62,

Cited by 43 publications

References 38 publications

Imperfect mobility of labor across sectors and fiscal transmission

Imperfect mobility of labor across sectors and fiscal transmission

Fiscal Shocks in a Two-Sector Open Economy With Endogenous Markups

Estimating the effect of the EMU on current account balances: A synthetic control approach

Contact Info

Product

Resources

About