The liquidity channel of fiscal policy Bayer, Christian; Born, Benjamin; Luetticke, Ralph
Journal of monetary economics,
March 2023, 2023-03-00, Letnik:
134
Journal Article
Recenzirano
Odprti dostop
•Expansionary fiscal policy lowers the return difference between public debt and less liquid assets.•An estimated HANK model with incomplete markets and portfolio choice rationalizes ...this.•Quantifying long-run effects: Higher public debt crowds out capital little, but reduces liquidity premium.•This increases the fiscal burden of debt. Still the revenue-maximizing level of public debt is positive.•A sovereign wealth fund can provide liquidity, increase the capital, and raise government revenues.
Expansionary fiscal policy lowers the return difference between public debt and less liquid assets—the liquidity premium. We rationalize this finding in an estimated heterogeneous-agent New-Keynesian model with incomplete markets and portfolio choice, in which public debt affects private liquidity. This liquidity channel stabilizes fixed-capital investment. We then quantify the long-run effects of higher public debt and find little crowding out of capital, but a sizable decline of the liquidity premium, which increases the fiscal burden of debt. The revenue-maximizing level of public debt is positive and has increased to 60 percent of US GDP post-2010.
We estimate the effect of temporary tax incentives on equipment investment using shifts in accelerated depreciation. Analyzing data for over 120,000 firms, we present three findings. First, bonus ...depreciation raised investment in eligible capital relative to ineligible capital by 10.4 percent between 2001 and 2004 and 16.9 percent between 2008 and 2010. Second, small firms respond 95 percent more than big firms. Third, firms respond strongly when the policy generates immediate cash flows, but not when cash flows only come in the future. This heterogeneity materially affects investment-weighted estimates and supports models in which financial frictions or fixed costs amplify investment responses.
This paper investigates household leverage-dependent fiscal policy effects in a two-agent New Keynesian DSGE model with occasionally binding borrowing constraints. Our model successfully replicates ...empirical evidence showing that fiscal policy’s effectiveness differs significantly across the household leverage cycle. Fiscal multipliers are persistently above unity when government spending rises at the peak of the household leverage cycle. In contrast, increases in government spending at the trough of the household leverage cycle imply fiscal multipliers below unity. We test the model’s predictions on post-WWII U.S. data.
There is a growing groundswell of opinion in commentary on the political economy of the Global North that the neoliberal era has seen the forceful (re)emergence of rentier capitalism. This article ...analyses the case of the UK. Identifying and delineating the predominant forms of contemporary rentierism operating in the UK, and using a range of datasets pertaining to the shape of the national economy, it shows that rentierism in its various guises is today a significant, even dominant, dynamic, in contrast to during the period preceding the neoliberal turn. The article further seeks to account for the ascendancy of the rentier in the UK under neoliberalism, highlighting key developments in the realms of monetary and fiscal policy and policies relating to asset ownership and property rights.
The optimisation of the cyclical adjustment procedure under the German debt brake should focus on how to contribute to a democratically legitimate and sustainable fiscal policy. in this article, we ...discuss four criteria that should be satisfied: The method must (i) be sufficiently determined, (ii) take the current state of research into account, (iii) incentivise a policy that enhances supply-side capacities, and (iv) be transparent. We show that today's form of the cyclically adjusted budget balance does not satisfy these criteria, and we propose a reform. Finally, we discuss several recent trends in German fiscal policy, questioning whether such a reform can save the debt brake's plausibility. Die Ampelkoalition hat sich im Koalitionsvertrag darauf geeinigt, das Konjunkturbereinigungsverfahren im Rahmen der Schuldenbremse zu uberprufen. Im Zentrum des Prozesses steht die Schatzung des Produktionspotenzials. Es soll die Normallage der Volkswirtschaft beschreiben und bestimmt massgeblich die Hohe der Konjunkturkomponente. Das Verfahren, auf dem die Potenzialschatzung beruht, ist vielfaltiger Kritik ausgesetzt, unter anderem aufgrund seiner Prozyklizitat und Revisionsanfalligkeit. Hier mit der Kritik zu beginnen, greift jedoch zu kurz. Denn bevor es um die Optimierung der Schatzmethodik geht, sollten Kriterien dafur ausbuchstabiert werden, wie sie zu einer demokratisch legitimierten Fiskalpolitik beitragen kann.
In the production function-based approach proposed by the European Commission for the estimation of the potential output, trend total factor productivity (TFP) is indirectly estimated on the basis of ...cyclical factors. Instead, this article proposes a more economics-based foundation of trend-TFP that is based on the arguments of the endogenous growth theory. A simple econometric exercise shows how the application of this approach may lead to a significantly different assessment of the potential output and, by extension, of the economy's output gap. This may have far-reaching consequences for the conduct of monetary and fiscal policy, e. g. in the context of the German debt brake.
How big (small?) are fiscal multipliers? Ilzetzki, Ethan; Mendoza, Enrique G.; Végh, Carlos A.
Journal of monetary economics,
03/2013, Letnik:
60, Številka:
2
Journal Article
Recenzirano
Odprti dostop
Contributing to the debate on the macroeconomic effects of fiscal stimuli, we show that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level ...of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries; (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rates but is zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are smaller than in closed economies; (iv) fiscal multipliers in high-debt countries are negative.
► We estimate the fiscal multiplier using an SVAR with a new quarterly database. ► The fiscal multiplier is larger in industrial than in developing countries. ► The fiscal multiplier is larger under fixed than under flexible exchange rates. ► Fiscal multipliers in open economies are smaller than in closed economies. ► Fiscal multipliers in high-debt countries are negative.
The study constructs a general equilibrium model to investigate the macroeconomic effects of oil production and investment subsidies. To make the model reflect real-life situations, the study ...incorporates Canadian economic data and uses a Bayesian method to fine-tune the model. Although subsidies boost the short-term economic effects of oil price shocks, they lead to overall losses in economic welfare over time, regardless of the channel through which they are provided. The study shows that a less aggressive headline inflation-targeting monetary policy combined with an efficient tax system is more beneficial in terms of welfare maximisation. The findings suggest three essential and complementary policies: a gradual phase-out of oil subsidies, starting with investment subsidies due to their relatively high welfare cost; increased investment in the green energy sector to reduce carbon footprints and offset the decline in oil and gas sectors; and improved coordination between fiscal and monetary policies.
•Subsidy is modelled using a Bayesian Dynamic Stochastic General Equilibrium model.•Oil production and investment subsidies reinforce economic expansion.•Over time, subsidies lead to welfare loss regardless of the provision channel.•Coordinated monetary and fiscal policies can improve welfare even without subsidy.•Oil subsidies should be phased out, beginning with those on investment.
We implement a meta-regression-analysis for the budgetary impact of numerical fiscal rules based on 30 studies published in the last decade. The existing empirical evidence points to a constraining ...effect of rules on fiscal aggregates. However, this seemingly optimistic message is strongly weakened as our analysis points to a bias if the potential endogeneity of fiscal rules is not explicitly taken into account. Furthermore, our analysis provides evidence for the presence of a publication bias. Both sources of bias reduce the statistical precision of obtained effects below usual levels of statistical significance. In addition, we offer suggestive evidence for the effect size based on a small coherent sub-sample and provide recommendations for future research on the budgetary impact of fiscal rules.
This paper estimates the incidence of state corporate taxes on the welfare of workers, landowners, and firm owners using variation in state corporate tax rates and apportionment rules. We develop a ...spatial equilibrium model with imperfectly mobile firms and workers. Firm owners may earn profits and be inframarginal in their location choices due to differences in location-specific productivities. We use the reduced-form effects of tax changes to identify and estimate incidence as well as the structural parameters governing these impacts. In contrast to standard open economy models, firm owners bear roughly 40 percent of the incidence, while workers and landowners bear 30-35 percent and 25-30 percent, respectively.
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