This paper examines logic and evidence bearing on the efficacy of fiscal policy in severely depressed economies. In normal times central banks offset the effects of fiscal policy. This keeps the policy-relevant multiplier near zero. It leaves no space for expansionary fiscal policy as a stabilization policy tool. But when interest rates are constrained by the zero nominal lower bound, discretio...

Pacific Economic Bulletin Volume 21 Number 2 2006 © Asia Pacific Press Granger causality tests confirm the results from the bounds-testing approach of the long-run relationships between Fiji’s economic growth and fiscal and monetary policies and exports. Government expenditure, representing fiscal policy, is assessed to have a greater impact than monetary policy and exports on Fiji’s gross dome...

Most analyses of monetary policy delegation schemes typically ignore the behavior of the fiscal policy maker. The paper investigates how monetary price level targeting or monetary nominal income targeting may yield social gain in an economy with government debt and where the fiscal policymaker, acting strategically, may take counter actions. We argue that the choice of fiscal policy instrument ...

Theory predicts that fiscal policy can affect economic growth by adjusting incentives for investment and labor as well as by distorting after-tax returns across sectors. This paper examines the effect of fiscal policy on growth rates first graphically, and then through two models, one of which disaggregates fiscal policy variables. I find evidence that increased size of government is negatively...

n 1992, President Bush proposed legislation intended to speed up the recovery from the 1990-91 recession. Congress rejected this proposal for countercyclical fiscal policy stimulus. In early 1993 President Clinton proposed his own stimulus package, but Congress rejected this proposal too. Many reasons were given for deciding against these two discretionary fiscal policy proposals, but perhaps t...

The search for “fiscal indicators” to provide a short-hand (and preferably quantitative) picture of the size, direction, and nature of intergovernmental finance – and, ideally, some guidance for policy designed to improve outcomes – appears to be neverending. “Fiscal balance” and “fiscal sustainability” are, for example, terms commonly heard in discussions of intergovernmental fiscal relations....

In this paper we present an endogenous growth model with productive government spending and pollution. As to pollution we suppose that it is a by-product of aggregate production and that it negatively affects utility of the household but not production possibilities directly. Analyzing our model it is first shown that for reasonable parameter values there exists a unique balanced growth path wh...

This paper tests various political business cycle theories in a New Keynesian model with a monetary and fiscal policy mix. All the policy coefficients, the target levels of inflation and the budget deficit, the firms’ frequency of price setting, and the standard deviations of the structural shocks are allowed to depend on ‘‘political’’ regimes: a preelection versus postelection regime, a regime...

This paper examines the effects of the most recent U.S. housing bubble on the fiscal policy of California cities. We use an instrumental variables approach that helps isolate fiscal consequences of house price appreciation by taking advantage of the influence of local topological constraints on the elasticity of house prices with respect to interest rates. Our analysis generates three main find...

The purpose of this paper is to examine within the context of a patieular U.S. exammetric model the sensitivity of fiscal policy effects to alternative assumptions about the behavior of the Federal Reserve. Five cases are considered, four in which Fed behavior is exogenous and one in which Fed behavior is endogenous. In each of the four exogenous cases the Fed is assumed to control a particular...