Fiscal multipliers : different instruments, different phases of the business cycle, different policies

Zervas, Andreas (2016) Fiscal multipliers : different instruments, different phases of the business cycle, different policies. PhD thesis, Birkbeck, University of London.

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Abstract

In this thesis I explore the effects of fiscal policy, on the main macroeconomic variables, particularly in the form of fiscal multipliers, mostly from an empirical but also from a theoretical perspective. The second chapter explores several issues concerning the workings of fiscal policy: the first is whether it is possible to identify proper spending shocks, overcoming potential problems caused by anticipation of policy from the private sector; it turns out it is. The second issue is what are the effects of different spending variables on the economy, and it turns out that civilian spending has beneficial effects, while military investment leads to output contraction. The second issue, taken up in chapter three, is to decipher the effects of both government spending and taxes in the different phases of the business cycle. It turns out that useful public spending has positive effects on economic activity, particularly in periods of low growth, and that spending is more powerful to stabilize the economy than taxes. Proper policy action appears to be necessary to make sense of the results. However, the current methods to identify fiscal shocks have several shortcomings, and a method to achieve better identification is proposed in chapter four. The econometric results verify that spending shocks have positive effects on the economic activity, while tax shocks negative, and that the spending multiplier appears to be bigger in absolute value than the tax multiplier, casting doubt on the relevance of several economic theories as well as policy prescriptions. The size of both multipliers depends on policy. In addition, no deterioration over time of the power of spending to stabilize the economy is visible. Finally, in chapter 5 a simulation of a baseline DSGE model gives some guidelines on how policy may affect economic outcomes.

Item Type: Thesis (PhD)
Copyright Holders: The copyright of this thesis rests with the author, who asserts his/her right to be known as such according to the Copyright Designs and Patents Act 1988. No dealing with the thesis contrary to the copyright or moral rights of the author is permitted.
School/Department: School of Business, Economics & Informatics > Economics, Mathematics & Statistics
Depositing User: ORBIT Editor
Date Deposited: 23 Mar 2016 10:26
Last Modified: 02 Dec 2016 12:47
URI: http://bbktheses.da.ulcc.ac.uk/id/eprint/175

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