Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization, and EMU

August 1, 1998

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Paul R Masson, and Tamim Bayoumi. Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization, and EMU, (USA: International Monetary Fund, 1998) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper looks at theoretical and empirical issues associated with the operation of fiscal stabilizers within an economy. It argues that such stabilizers operate most effectively at a national, rather than local, level. As differing cycles across regions tend to offset each other for the country as a whole, national fiscal stabilizers are not associated with the same increase in future tax liabilities for the region as local ones. Accordingly, the negative impact from the Ricardian effects associated with these tax liabilities is smaller. Empirical work on data across Canadian provinces indicates that local stabilizers are only 1/3 to ½ as effective as national stabilizers that create no future tax liability.

Subject: Consumption, Fiscal policy, Fiscal stabilization, Government consumption, Income, National accounts, Personal income

Keywords: Beginning-of-period government debt, Consumption, Deficit variable, Europe, Fiscal Stabilization, Government consumption, Income, Keynesian deficit finance, Levels of Government, Liability-creating deficit, Personal income, Ricardian Equivalence, Tax liability, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/112
Stock No:

WPIEA1121998
ISBN:

9781451853575
ISSN:

1018-5941

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