Simple, Implementable Fiscal Policy Rules

April 1, 2009

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Format: Chicago

Michael Kumhof, and Douglas Laxton. Simple, Implementable Fiscal Policy Rules, (USA: International Monetary Fund, 2009) accessed December 3, 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 analyzes the scope for systematic rules-based fiscal activism in open economies. Relative to a balanced budget rule, automatic stabilizers significantly improve welfare. But they minimize fiscal instrument volatility rather than business cycle volatility. A more aggressively countercyclical tax revenue gap rule increases welfare gains by around 50 percent, with only modest increases in fiscal instrument volatility. For raw materials revenue gaps the government should let automatic stabilizers work. The best fiscal instruments are targeted transfers, consumption taxes and labor taxes, or, if it enters private utility, government spending. The welfare gains are significantly lower for more open economies.

Subject: Consumption, Copper, Fiscal policy, Labor, Revenue administration

Keywords: WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/076
Stock No:

WPIEA2009076
ISBN:

9781451872231
ISSN:

1018-5941

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