IDEAS home Printed from https://ideas.repec.org/p/han/dpaper/dp-470.html
   My bibliography  Save this paper

Effects of discretionary fiscal policy: new empirical evidence for Germany

Author

Listed:
  • Bank, Alexander

Abstract

This paper analyses the effects of discretionary fiscal policy by presenting new empirical evidence for Germany within a structural vector autoregression (SVAR) framework. Following Blanchard and Perotti (2002), the SVAR model is identified by applying institutional information. We find no compelling evidence for the effectiveness of discretionary fiscal policy. Cutting taxes does not tend to stabilise the business cycle. Increasing government expenditure has an ambiguous effect on GDP for the basic specification. However, by controlling for the influence of inflation, higher government expenditure does not either tend to stabilise economic activity. The results are robust to various modifications.

Suggested Citation

  • Bank, Alexander, 2011. "Effects of discretionary fiscal policy: new empirical evidence for Germany," Hannover Economic Papers (HEP) dp-470, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-470
    as

    Download full text from publisher

    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-470.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tenhofen Jörn & Wolff Guntram B. & Heppke-Falk Kirsten H., 2010. "The Macroeconomic Effects of Exogenous Fiscal Policy Shocks in Germany: A Disaggregated SVAR Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(3), pages 328-355, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daly, Hounaida & Smida, Mounir, 2013. "La coordination des politiques monétaire et budgétaire: Aperçu théorique [Coordination of monetary and fiscal policies: Theoretical Overview]," MPRA Paper 48020, University Library of Munich, Germany.
    2. Montes, Gabriel Caldas & Luna, Paulo Henrique, 2018. "Discretionary fiscal policy and disagreement in expectations about fiscal variables empirical evidence from Brazil," Economic Modelling, Elsevier, vol. 73(C), pages 100-116.
    3. Muhsin Ali & Karim Khan, 2020. "Volatility in Discretionary Public Spending and Economic Growth: A Cross Country Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 45-68.
    4. Gabriel Caldas Montes & Iven Silva Valpassos, 2018. "Discretionary fiscal policy and sovereign risk," Economics Bulletin, AccessEcon, vol. 38(3), pages 1343-1365.
    5. Daly, Hounaida & Smida, Mounir, 2013. "Interaction entre politique monétaire et politique budgétaire:Cas de la Grèce [Fiscal and Monetary Policy Interactions : The Greece Case]," MPRA Paper 45931, University Library of Munich, Germany.
    6. Bernd Hayo & Matthias Uhl, 2011. "The Effects of Legislated Tax Changes in Germany," MAGKS Papers on Economics 201142, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    7. Daly, Hounaida & Smida, Mounir, 2014. "Fiscal Theory of Price Level," MPRA Paper 60142, University Library of Munich, Germany.
    8. Gabriel Caldas Montes & Paulo Henrique Lourenço Luna, 2022. "Do fiscal opacity, fiscal impulse, and fiscal credibility affect disagreement about economic growth forecasts? Empirical evidence from Brazil considering the period of political instability and presid," Review of Development Economics, Wiley Blackwell, vol. 26(4), pages 2356-2393, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brautzsch, Hans-Ulrich & Günther, Jutta & Loose, Brigitte & Ludwig, Udo & Nulsch, Nicole, 2015. "Can R&D subsidies counteract the economic crisis? – Macroeconomic effects in Germany," Research Policy, Elsevier, vol. 44(3), pages 623-633.
    2. Michal Franta, 2012. "Macroeconomic Effects of Fiscal Policy in the Czech Republic: Evidence Based on Various Identification Approaches in a VAR Framework," Working Papers 2012/13, Czech National Bank.
    3. Ignacio Lozano Espitia & Karen Rodríguez, 2009. "Assessing the Macroeconomic Effects of Fiscal," Borradores de Economia 5386, Banco de la Republica.
    4. Alejandro López-Vera & Andrés D. Pinchao-Rosero & Norberto Rodríguez-Niño, 2018. "Non-Linear Fiscal Multipliers for Public Expenditure and Tax Revenue in Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 36(85), pages 48-64, April.
    5. Sebastian Gechert, 2015. "What fiscal policy is most effective? A meta-regression analysis," Oxford Economic Papers, Oxford University Press, vol. 67(3), pages 553-580.
    6. Hollmayr, Josef & Kuckuck, Jan, 2018. "Fiscal multipliers of central, state and local government and of the social security funds in Germany: Evidence of a SVAR," Discussion Papers 28/2018, Deutsche Bundesbank.
    7. António Afonso & Ricardo Sousa, 2011. "The macroeconomic effects of fiscal policy in Portugal: a Bayesian SVAR analysis," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(1), pages 61-82, April.
    8. Kuehn, S. & van Veen, A.P. & Muysken, J., 2009. "The adverse effects of government spending on private consumption in new Keynesian models," Research Memorandum 004, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    9. Alemu Lambamo Hawitibo, 2023. "Explaining macroeconomic fluctuations in Ethiopia: the role of monetary and fiscal policies," Economic Change and Restructuring, Springer, vol. 56(2), pages 1033-1061, April.
    10. Iszan Hana Kaharudin & Mohammad Syuhaimi Ab-Rahman, 2022. "Fiscal Policy Effects on Private Expenditure for Sustainable Economic Growth: A Panel VAR Study from Selected Developing Countries," Sustainability, MDPI, vol. 14(17), pages 1-21, August.
    11. Ulf Von Kalckreuth & Guntram B. Wolff, 2011. "Identifying Discretionary Fiscal Policy Reactions with Real‐Time Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(6), pages 1271-1285, September.
    12. Luis N. Lanteri, 2013. "Choques de política fiscal, consumo privado, inversión y otras variables macroeconómicas. El caso de Argentina," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 15(29), pages 285-302, July-Dece.
    13. Gehrke, Britta & Lechthaler, Wolfgang & Merkl, Christian, 2019. "The German labor market during the Great Recession: Shocks and institutions," Economic Modelling, Elsevier, vol. 78(C), pages 192-208.
    14. Giancarlo Corsetti & Michael P. Devereux & Luigi Guiso & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2010. "Chapter 3: From Fiscal Rescue to Global Debt," EEAG Report on the European Economy, CESifo, vol. 0, pages 71-100, February.
    15. Khalid Khan & Chen FEI & Muhammad Abdul Kamal & Badar Nadeem Ashraf, 2015. "Impact of Government Spending on Private Consumption Using ARDL Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(2), pages 239-248, February.
    16. Shahid Ali & Naved Ahmad, 2010. "The Effects of Fiscal Policy on Economic Growth: Empirical Evidences Based on Time Series Data from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 497-512.
    17. Monika Pécsyová, 2014. "Odhad vplyvu fiškálnej konsolidácie na rast HDP v SR [Estimated Impact of Fiscal Consolidation on GDP Growth in the Slovak Republic]," Politická ekonomie, Prague University of Economics and Business, vol. 2014(2), pages 174-193.
    18. Rafael Ravnik & Ivan Zilic, 2011. "The use of SVAR analysis in determining the effects of ?scal shocks in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 35(1), pages 25-58.
    19. Shafik Hebous, 2011. "The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 674-707, September.
    20. Désirée I. Christofzik & Angela Fuest & Robin Jessen, 2022. "Macroeconomic Effects of the Anticipation and Implementation of Tax Changes in Germany: Evidence from a Narrative Account," Economica, London School of Economics and Political Science, vol. 89(353), pages 62-81, January.

    More about this item

    Keywords

    Discretionary fiscal policy; Germany; structural vector autoregression;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:han:dpaper:dp-470. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Heidrich, Christian (email available below). General contact details of provider: https://edirc.repec.org/data/fwhande.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.