In earlier work we documented two episodes in which a sharp fiscal consolidation was associated with a surprisingly large expansion in private domestic demand. In this paper we draw on further evidence to investigate if and when fiscal policy changes can have such non-Keynesian effects. In the...

In an economy with financial imperfections, Ricardian equivalence holds when prices are flexible and the steady-state distribution of consumption is uniform, or labor is inelastic. With different steady-state consumption levels, Ricardian equivalence fails, but tax cuts, somewhat paradoxically,...

A central tenet of the Maastricht Treaty is that a successful European Monetary Union requires sustainable public finances of its member states. Yet there is no clear definition of sustainability. The economist’s common use of the term builds on the concept of an intertemporal budget...

Under free capital mobility, confidence crises can lead to devaluations even when fixed exchange rates are viable, if fiscal authorities can obtain temporary money financing of deficits. During a crisis domestic interest rates increase, reflecting the expected devaluation. Rather than selling...

We estimate the effects of fiscal policy on the labor market in US data. An increase in government spending of 1 percent of GDP generates output and unemployment multipliers respectively of about 1.2 per cent (at one year) and 0.6 percentage points (at the peak). Each percentage point increase...

This Paper studies the effects of fiscal policy on GDP, inflation and interest rates in five OECD countries, using a structural Vector Autoregression approach. Its main results can be summarized as follows: 1) The effects of fiscal policy on GDP tend to be small: government spending multipliers...

Data revisions and the availability of a longer sample offer the opportunity to reconsider the empirical findings that suggest that in the OECD countries national saving responds non-monotonically to fiscal policy. The paper confirms that the circumstance most likely to give rise to a...

Fiscal policy restrictions are often criticized for limiting the ability of governments to react to business cycle fluctuations. Therefore, the adoption of quantitative restrictions is viewed as inevitably leading to increased macroeconomic volatility. In this Paper we use data from 48 US states...

Several recent studies imply that the response of national saving to fiscal policy is non-monotonic. In this paper, we use two data sets to search for the circumstances in which such non-monotonic responses arise: one refers to a sample of OECD countries, as in previous studies, and one to a...

This paper studies the role of automatic stabilizers using a sample of OECD countries and US states. We find that there is a strong and robust negative correlation between measures of government size and the volatility of output. This correlation is robust to the inclusion of a large set of...