Estimating the Effects of Fiscal Policy in OECD Countries

By Roberto Perotti. Social Science Research Network, 2002

1,155 citations recorded by the source corpus.

This paper studies the effects of fiscal policy on GDP, prices and interest rates in 5 OECD countries, using a structural Vector Autoregression approach. Its main results can be summarized as follows: 1) The estimated effects of fiscal policy on GDP tend to be small: positive government spending multipliers larger than 1 tend to be the exception; 2) The effects of fiscal policy on GDP and its components have become substantially weaker over time; 3) Under plausible values of the price elasticity, government spending has positive effects on the price level, although usually small; 4) Government spending shocks have significant effects on the nominal and real short interest rate, but of varying signs; 5) In the post-1980 period, net tax shocks have positive short run effects on the nominal interest rate, and typically negative or zero effects on prices; 6) The US is an outlier in many dimensions; responses to fiscal shocks estimated on US data are often not representative of the average OECD country included in this sample.

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Citations in the corpus

What is the Importance of Monetary and Fiscal Shocks in Explaining US Macroeconomic Fluctuations (2011, background): “…Eichenbaum and Evans (2000, 2005) and Romer and Romer (1989, 1994) focus only on monetary policy shocks, whereas Blanchard and Perotti (2002), Perotti (2004, 2007), Ramey and Shapiro (1998), Ramey (2008) and Gali et al. (2007) only focus on government spending shocks.1 Since both monetary…”
Government Expenditure and Economic Growth in the EU: Long-Run Tendencies and Short-Term Adjustment (2008, unknown): “higher government expenditure shares on GDP than countries with majoritarian election (Persson, Roland, and Tabellini (2006)) and by government expenditure tilted towards transfers rather than purchases of goods and services (Milesi-Ferretti, Perotti and Rostagno (2002)). It has also been shown that”
Fiscal consolidation with tax evasion and corruption (2014, background): “As a first pass at ascertaining whether the shocks we have identified are truly unanticipated, we follow Perotti (2005) and regress the spending shocks, identified in our baseline sign restrictions, on forecast errors from professional forecasts of government expenditure.15 The first column of…”
Fluctuating Macro Policies and the Fiscal Theory [with Comments and Discussion] (2005, unknown): “…the fiscal theory mechanism may be quite potent in U.S. data, helping to reconcile a popular class of DSGE models for monetary policy with the empirical evidence that tax disturbances have important “demand-side” impacts [Blanchard and Perotti (2002), Mountford and Uhlig (2002), Perotti (2004)].”
The Economic Effects of Exogenous Fiscal Shocks in Spain: A SVAR Approach (2006, methodology): “Thus, an eclectic approach has been adopted and, following Perotti (2004) the price elasticity of government expenditure has been set to -0.5.”
The Dynamic Effects of Public Capital: VAR Evidence for 22 OECD Countries (2005, unknown): “Blanchard and Perotti (2002) applied this approach to estimate the effects of tax and government spending shocks for the United States.”
Successful Austerity in the United States, Europe and Japan (2012, unknown): “10 However, more recent empirical studies, starting from Fatás and Mihov (2001) and Blanchard and Perotti (2002), adopt structural VARs (SVAR) for the purpose of identification, and obtain results more in line with Keynesian claims on the impact of fiscal policy.9 Under the BP approach government…”
FISCAL POLICY AND ASSET PRICES (2013, unknown): “This result is consistent with the common wisdom that fiscal policy effects have substantially weakened over the last 20 years (Perotti, 2004).”
Fiscal Policy Shocks in the Euro Area and the US: An Empirical Assessment (2010, methodology): “Thus, we adopted the same eclectic approach as in Perotti (2004) , according to which the price elasticity of government expenditure was set to -0.5.12”
How does fiscal policy react to wealth composition and asset prices (2012, methodology): “Following Blanchard and Perotti (2002) and Afonso and Sousa (2011b), we impose that primary spending does not react to economic activity, which can be seen by the "zero" coe¢ cient associated with output in Columns 1-3.”
What fiscal policy is most effective? A Meta Regression Analysis (2015, background): “Ninth, time series from more recent years tend to yield lower multipliers, confirming the findings in Bilbiie et al. (2008) and Perotti (2005), but my sample does not cover an adequate portion of the effects of the stimulus packages in response to the financial crisis.”
Does Government Spending Crowd in Private Consumption? Theory and Empirical Evidence for the Euro Area (2005, unknown): “…area is relatively small, suggesting that financial deregulation over the last two decades has lowered financial-market participation costs and lending support to the observation that the effects of fiscal policy have become weaker over time (see, e.g., Fatás and Mihov, 2001; and Perotti, 2002).”
Government spending shocks in open economy VARs (2014, methodology): “Apart from the fundamentalness problem, the traditional identification scheme of Blanchard and Perotti, 2002, being based on actual current spending changes, is unsuited to capture “news” or “foresight” shocks, which, by their very definition, have only delayed effects on spending.”
Rule‐of‐Thumb Consumers Meet Sticky Wages (2007, methodology): “Once wage stickiness is considered, the positive e¤ect of government spending on aggregate consumption reported by the empirical studies of, inter alia, Blanchard and Perotti (2002), is not a robust feature of the model with rule of thumb consumers.”