Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2004:12: Fiscal Policy Regimes and Household Consumption

Kristian Jönsson ()
Additional contact information
Kristian Jönsson: Sveriges Riksbank, Postal: Macroprudential Division, Financial Stability Department, Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: In this paper, we study the effects of fiscal policy during different fiscal policy regimes. More specifically, we investigate how different factors, such as size, duration and composition of fiscal changes, can alter the effects of fiscal policy on private consumption. Using an unbalanced panel of 19 OECD countries during the period 1960-2000, we find that transfer changes are believed to be permanent during fiscal contractions. Hence, it is more likely that an expansionary fiscal contraction will occur if the government cuts transfers. Our results highlight the importance of accounting for specific circumstances, such as the debt and deficit position, when studying expansionary fiscal contractions. The results also indicate that expansionary fiscal contractions are likely to come at a considerable social cost.

Keywords: Panel data; Household consumption; Fiscal policy; Non-Keynesian effects

JEL-codes: C23; E21; E62; H31

29 pages, March 25, 2004

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