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National Fiscal Stimulus Packages And Consolidation Strategies In A Monetary Union

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  • Christoph Bierbrauer

    (Hochschule Darmstadt)

Abstract

We present a two-country New Open Economy Macroeconomics model of a currency union featuring an overlapping generations structure of the Blanchard (1985)-Yaari (1965) type as well as monopolistic frictions and staggered adjustment in the goods and labor market. We allow for public investment and distortionary taxation. We study the effects of fiscal policy measures such as public spending, tax cuts targeted to households and public investment as suggested by the European Commission (2008). In particular, we explore the effects of fiscal policy as a function of the financing decision of the implementing government. We find that the impact of fiscal measures on national variables as well as the spillovers depend on the assumed degree of household myopia and again, the financing decision of the government. However, the introduction of a complex fiscal sector which enables the government to choose between alternative financing schemes is an important determinant of the effects of fiscal expansions on key macroeconomic variables such as, output and consumptions. Thus, modeling a complex fiscal sector on both sides of the budgets is crucial for the results and therefore the effectiveness of fiscal stimulus packages.

Suggested Citation

  • Christoph Bierbrauer, 2017. "National Fiscal Stimulus Packages And Consolidation Strategies In A Monetary Union," IEER Working Papers 110, Institute of Empirical Economic Research, Osnabrueck University.
    • Handle: RePEc:iee:wpaper:wp0110
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    More about this item

    Keywords

    Overlapping generations; New open economy macroeconomics; Public Debt; Decentralized fiscal policy; Monetary union;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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