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Fiscal Policy and the Slowdown in Trend Growth in an Open Economy

Author

Listed:
  • Alexander Beames

    (Macroeconomic Group, The Treasury)

  • Mariano Kulish

    (School of Economics, University of Sydney)

  • Nadine Yamout

    (School of Economics, University of Sydney)

Abstract

We study the impact that a permanent slowdown in trend growth has on fiscal policy with an estimated small open economy model. The magnitude and timing of the change in trend growth are estimated alongside the structural and fiscal policy rule parameters. Around 2003:Q3, trend growth in per capita output is estimated to have fallen from just over 2 per cent to 0.6 per cent annually. The slowdown sets off an endogenous response of the private sector which increases capital accumulation acting as an automatic stabilizer. The slowdown also brings about a lasting transition which in the short-run decreases consumption tax revenues but increases them in the long-run changing permanently the composition of tax revenues and temporarily increasing the government debt to output ratio.

Suggested Citation

  • Alexander Beames & Mariano Kulish & Nadine Yamout, 2022. "Fiscal Policy and the Slowdown in Trend Growth in an Open Economy," Working Papers 143, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:143
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/143.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Open economy; trend growth; fiscal policy; real business cycles; estimation; structural breaks.;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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