The fiscal condition of most OECD countries has deteriorated markedly in the last 30 years. But beyond this general weakening, there has been considerable variation in the fiscal performance of these countries. For example, Italy, Belgium, Japan and Ireland accumulated significant amounts of public debt whereas Finland, Norway, the UK and, until recently, Germany, implemented relatively conserv...

Using a flexible semiparametric varying coefficient model specification, this paper examines the role of fiscal policy on the U.S. asset markets (stocks, corporate and treasury bonds). We consider two possible roles of fiscal deficits (or surpluses): as a separate direct information variable and as a (indirect) conditioning information variable indicating binding constraints on monetary policy ...

This paper investigates the effects of fiscal policy on the trade balance using a structural factor model. A fiscal policy shock worsens the trade balance and produces an appreciation of the domestic currency but the effects are quantitatively small. The findings match the theoretical predictions of the standard Mundell-Fleming model, although fiscal policy should not be considered one of the m...

THE ``DECADE of development’’ cannot rest on an unstable fiscal base. India has seen too often how bold objectives can be pushed aside through financial crisis. It is extremely important to bring down fiscal deficits mainly through budget cuts and privatisation revenues to reduce the ratio of public debt to national income to avoid future macroeconomic destabilisation. Unless substantial fiscal...

In this paper we analyze the implications of demographic shift for an economy’s fiscal sustainability through lens of fiscal space. We formulate a stochastic dynamic general equilibrium, overlapping generations model to measure fiscal space in terms of budgetary room between the current and maximum tax revenues (the peaks of Laffer curves). We calibrate the model to Japan and US data and conduc...

This contribution develops a blueprint for a European fiscal union. We argue that a viable European fiscal union can be constructed without joint liability for public debt or a centralized government with a large common budget. Such a fiscal union should combine elements of market discipline with stabilisation in case of asymmetric shocks. Our proposal addresses the shortcomings of most other r...

This paper studies the effects of monetary policy rules in a fiscal federation, such as the European Union. The focus of the analysis is the interaction between the fiscal policy of member countries (regions) and the monetary authority. Each of the countries structures its fiscal policy (spending and taxes) with the interests of its citizens in mind. Ricardian equivalence does not hold due to t...

An important feature of aid to developing countries is that it is given to the government. As a result, aid should be expected to affect fiscal behaviour. Traditional approaches to modelling fiscal effects are beset by theoretical and empirical problems. This paper applies techniques developed in the ‘macroeconometrics’ literature to estimate the dynamic linkages between aid and fiscal aggregat...

We investigate whether fiscal rules help to reduce the extent of policy procyclicalitydhow government expenditure policy responds to GDP– in a dynamic panel framework with 81 advanced, emerging and developing countries over 1985e2012. We construct two new fiscal rule indices and investigate whether rules help to dampen procyclical policies. We condition our empirical specifications on the degre...