the macroeconomic effects of government debt in a stochastic growth model abstract this paper studies how government liabilities affect macroeconomic aggregates in a standard general equilibrium growth model there are two principal results i though it is often thought that fiscal deficits crowd out investment this paper shows that deficit financed cuts in distortionary income taxation may stimulate investment even if agents expect future taxes on capital income to be higher this result is dependent on the values of two key parameters the elasticity of labor supply and the degree of persistence in the government debt process ii the economy s response to an increase in government expenditure depends on how it is financed distortionary tax finance may lead to a decline in output consumption and investment in contrast deficit finance may increase output and consumption

deep habits price rigidities and the consumption response to government spending this paper inspects the deep habits mechanism originally used by ravn schmitt grohe and uribe 2006 to generate the positive comovement of public and private consumption observed in many var studies in their set up the price elasticity of demand is pro cyclical and it is optimal for the firm to lower the mark up while expanding production after the fiscal shock raising the demand for labor and the real wage consequently agents substitute consumption for leisure and overcome the negative wealth effect of the fiscal expansion here we show that increasing price stickiness reduces the impact of the fiscal shock on the real wage and hinders the rise of consumption if the degree of price stickiness is high enough consumption is crowded out this is in contrast to the role of price rigidities in the standard new keynesian model where they weaken the crowding out of consumption

government spending effects in low income countries abstract despite the voluminous literature on fiscal policy very few papers focus on low income countries lics this paper develops a new keynesian small open economy model to show analytically and numerically that several prevalent features of lics dependence on external financing public investment inefficiency and a low degree of home bias in public investment play important roles in government spending effects external financing increases the resource envelope mitigating the crowding out effects but it tends to appreciate the real exchange rate lowering traded output although capital scarcity in lics implies high returns to public capital low marginal investment efficiency can substantially dampen the output multiplier also public investment may not be effective in stimulating output in the short run as lics often rely on imports to a large extent to carry out public investment projects weakening its role as a short run demand stimulus

disentangling demand and supply shocks in the crude oil market how to check sign restrictions in structural vars given the growing dissatisfaction with exclusion and long run restrictions in structural vector autoregressive analysis sign restrictions are becoming increasingly popular so far there are no techniques for validating the shocks identied via such restrictions although in an ideal setting the sign restrictions specify shocks of interest sign restrictions may be invali dated by measurement errors data adjustments or omitted variables we model changes in the volatility of the shocks via a markov switching ms mechanism and use this devise to give the data a chance to object to sign restrictions the approach is illustrated by considering a small model for the market of crude oil

education poverty and terrorism is there a causal connection the paper investigates whether there is a connection between poverty or low education and terrorism we review evidence on hate crimes which are closely related to terrorism the occurrence of hate crimes is largely independent of economic conditions we analyze data on support for attacks against israeli targets from public opinion polls conducted in the west bank and gaza strip support for violent attacks does not decrease among those with higher education and higher living standards the core contribution of the paper is a statistical analysis of the determinants of participation in hezbollah militant activities having a living standard above the poverty line or a secondary or higher education is positively associated with participation in hezbollah we also find that israeli jewish settlers who attacked palestinians in the west bank in the early 1980s were overwhelmingly from high paying occupations although our results are tentative and exploratory they suggest that neither poverty nor education has a direct causal impact on terrorism

lines in the sand price dispersion across iraq s intranational borders before during and after the surge abstractthis paper tests the impact of a change in security commitment on market development in a country embroiled in low intensity conflict we analyze weekly price data for approximately 250 goods from 18 iraqi cities between 2005 and 2008 our paper suggests four empirical regularities associated with price dispersion and market development in postwar iraq first the degree of intracountry price dispersion in iraq is higher than that reported for a typical industrialized nation second the degree of price dispersion decreased significantly during 2007 coincident with the change in u s security strategy known as the surge third the economic impact of the surge is geographically uneven but loosely follows patterns of u s deployment with price dispersion decreasing by roughly one third in areas targeted during the surge but remaining relatively static in other areas finally we find that internal ethnoreligious divisions have relatively modest effects on price dispersion

cyclical effects of government s employment and goods purchases distinguishing between the goods purchase and employee compensation components of government spending is important shocks to government goods purchases and shocks to government employment have the opposite effects on private output private employment and private investment moreover with this distinction in place quantitative analysis reveals that government spending is no longer a significant driving source of the u s business cycle on the contrary the components of government spending are procyclical in the u s data primarily because of their positive responses to the output fluctuations generated by technology shocks copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

monetary policy and the relative price of durable goods abstract in a structural vector autoregressive model of the us the response of the relative price of durables to a monetary policy contraction is either flat or mildly positive it significantly falls only if narrowly defined as the ratio between new house and nondurables prices these findings are rationalized via the estimation of two sector new keynesian nk models durables prices are estimated to be as sticky as those of nondurables leading to a flat relative price response to a monetary policy shock conversely house prices are estimated to be almost flexible such results survive several robustness checks and a three sector extension of the nk model these findings have implications for building nk models with durable and nondurable goods and for the conduct of monetary policy

fiscal expansions unemployment and labor force participation theory and evidence structural vars indicate that for many oecd countries labor force participation employment and the unemployment rate significantly increase following increases in government expenditures under a variety of specifications and identification schemes fiscal expansions also tend to increase real wages existing models have difficulties in generating such responses we show that the empirical regularities can be reproduced with two additions into a standard new keynesian model with matching frictions a a labor force participation choice and b workers heterogeneity

how do shocks to domestic factors affect real exchange rates of asian developing countries this paper examines real exchange rate responses to shocks in exchange rate determinants for fourteen asian developing countries the analysis is based on a panel structural vector error correction model and the shocks are identified using sign and zero restrictions we find that trade liberalization generates permanent depreciation and higher government consumption causes persistent appreciation traded sector productivity gains induce appreciation but their effects are not immediate and last only for a few years real exchange rate responses to unexpected monetary tightening are consistent with the long run neutrality of money the evidence suggests that trade liberalization and government consumption have a strong effect on real exchange rates while the effects of traded sector productivity shocks are much weaker

monopolistic competition increasing returns to scale and the importance of productivity shocks abstract the neoclassical growth model is extended to incorporate monopolistic competition and increasing returns to scale implications for the measurement of productivity change through the solow residual are studied it is found that for this extension productivity fluctuations continue to account for a substantial fraction of output volatility the model cannot account for volatility of employment

optimal public sector wages i build a dynamic stochastic general equilibrium model with search and matching frictions to determine the optimal public sector wage policy public sector wages are crucial in achieving efficient allocation of jobs high wages induce too many unemployed to queue for public sector jobs in turn raising unemployment the optimal wage depends on the frictions in the two sectors following technology shocks public sector wages should be pro cyclical and deviations from the optimal policy significantly increase the volatility of unemployment

separating the wheat from the chaff a disaggregate analysis of the effects of public spending in the us in this paper we undertake a systematic disaggregate analysis of the effects of government spending on economic activity in the us the level of disaggregation we consider is the highest available and is unprecedented in the empirical literature more specifically public consumption and public investment are decomposed into various subcategories which are measured at the levels of the federal defence and non defence and state and local governments for each subcategory we estimate a structural vector autoregression that identifies public spending shocks through the conditional heteroskedasticity of the structural disturbances thus relaxing the identifying restrictions commonly used in the literature our analysis reveals significant heterogeneity in the effects of public spending shocks on output both across subcategories and government levels shocks to spending on durables and structures are found to have the largest and most persistent effect on aggregate output with a peak multiplier that exceeds 1 our results also suggest that there is little association between the size of a given category of public expenditures and the magnitude of its effect on output resume separer le bon grain de l ivraie une analyse desagregee des effets des depenses publiques aux etats unis dans ce texte on entreprend une analyse desagregee des effets des depenses gouvernementales sur l activite economique aux etats unis le niveau de desagregation considere est le plus grand possible et est sans precedent dans la litterature empirique plus specifiquement la consommation et l investissement publics sont decomposes en diverses sous categories qui sont mesurees pour le gouvernement federal defense et non defense ainsi que pour les gouvernements des etats et locaux pour chaque sous categorie on estime un vecteur autoregressif structurel qui identifie les chocs de depenses publiques a travers l heteroscedastictite conditionnelle des perturbations structurelles pour ainsi rel cher les restrictions d identification communement utilisees dans la litterature l analyse revele une heterogeneite significative dans les effets des chocs de depenses publiques sur la production agregee selon les sous categories et les niveaux de gouvernement les chocs dans les depenses sur les biens durables et les structures tendent a avoir les effets les plus grands et les plus persistants sur la production agregee avec un effet multiplicateur qui excede 1 les resultats suggerent qu il y a peu de rapport entre la taille d une categorie donnee dans les depenses publiques et l ampleur de l effet sur la production agregee

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

immigration policy and counterterrorism abstract in a developing country terrorists recruit and allocate their capital skilled labor and unskilled labor between domestic and foreign targets domestic targets require less skilled labor than foreign targets under various strategic scenarios we show how countermeasures against the different terrorist inputs alter the amount and mix of targets as well as how skilled and unskilled immigration quotas by a targeted foreign country affect this mix of attacks we find that increases in skilled labor quotas generally reduce terrorist attacks in the foreign country especially when the terrorists reside in a skill scarce country a number of different strategic scenarios including leader follower are investigated

environmental performance in socially fragmented countries social fragmentation is often associated with reduced co operative behaviour which undermines public goods provision such as environmental protection the few studies linking social fragmentation and environmental performance have been confined to using ethnic fractionalisation as the only measure of social heterogeneity in this paper we contribute to the literature in a twofold manner first we bring into the analysis alternative measures of social fragmentation i e religious fractionalisation ethnic religious polarisation that have received considerable attention in development economics in recent years second this is the first study to our knowledge that makes use of a large panel dataset of several environmental indicators to explore links between ethnic religious diversity and the environment we find that all indices of social fragmentation are negatively linked to measures of environmental quality although for some of them the size of the effect is larger in the case of polarisation

government spending and heterogeneous consumption dynamics abstract what is the effect of government spending on consumption neoclassical and new keynesian models deliver opposing predictions and empirical studies differ in their conclusions this paper takes a data driven approach and exploits information from over 200 variables via a bayesian factor augmented var model i use sign restrictions for identifying effects that both classes of models agree upon this approach imposes a minimal set of restrictions on the empirical model leaving the sign and magnitude of the effect of government spending on consumption free to be determined by the data i find that i government spending increases aggregate consumption ii the estimated spending multiplier is close to 2 iii there exists heterogeneity even within durable nondurable and service consumption variables which is undocumented in the literature finally i show that my identified structural shocks are not predictable by economic agents and are uncorrelated with traditional monetary policy shocks suggesting that these effects are not confounded by monetary policy

the elusive costs and the immaterial gains of fiscal constraints we study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 us states fiscal constraints are characterized with a number of indicators and volatilities and correlations are computed in several ways the second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place creative budget accounting may account for the results

why does private consumption rise after a government spending shock recent empirical evidence suggests that private consumption is crowded in by government spending this outcome violates existing macroeconomic theory according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption

clearing up the fiscal multiplier morass bayesian prior predictive analysis of five nested dsge models suggests that model specifications and prior distributions tightly circumscribe the range of possible government spending multipliers multipliers are decomposed into wealth and substitution effects yielding uniform comparisons across models by constraining the multiplier to tight ranges model and prior selections bias results revealing less about fiscal effects in data than about the lenses through which researchers choose to interpret data when monetary policy actively targets inflation output multipliers can exceed one but investment multipliers are likely to be negative passive monetary policy produces consistently strong multipliers for output consumption and investment

business cycle measurement with some theory a method to evaluate cyclical models not requiring knowledge of the dgp and the exact specification of the aggregate decision rules is proposed we derive robust restrictions in a class of models use some to identify structural shocks in the data and others to evaluate the class or contrast sub models the approach has good properties even in small samples and when the class of models is misspecified the method is used to sort out the relevance of a certain friction the presence of rule of thumb consumers in a standard class of models

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

capital inflows and the u s housing boom we estimate an open economy vector autoregressive var model to study the effect of capital inflow shocks on the u s housing market we look at different external shocks that generate capital inflows to the u s in particular saving glut shocks and foreign monetary policy expansions the shocks are identified with theoretically robust sign restrictions derived from an open economy dynamic stochastic general equilibrium dsge model our findings suggest that capital inflows that result from saving glut shocks have a positive and persistent effect on real house prices and real residential investment

poverty political freedom and the roots of terrorism this article provides an empirical investigation of the determinants of terrorism at the country level in contrast with the previous literature on this subject which focuses on transnational terrorism only i use a new measure of terrorism that encompasses both domestic and transnational terrorism in line with the results of some recent studies this article shows that terrorist risk is not significantly higher for poorer countries once the effects of other country specific characteristics such as the level of political freedom are taken into account political freedom is shown to explain terrorism but it does so in a non monotonic way countries in some intermediate range of political freedom are shown to be more prone to terrorism than countries with high levels of political freedom or countries with highly authoritarian regimes this result suggests that as experienced recently in iraq and previously in spain and russia transitions from an authoritarian regime to a democracy may be accompanied by temporary increases in terrorism finally the results suggest that geographic factors are important to sustain terrorist activities this abstract was borrowed from another version of this item

price differentials in monetary unions the role of fiscal shocks we study the effect of regional expenditure and revenue shocks on price differentials for 47 us states and 9 eu countries we identify shocks using sign restrictions on the dynamics of expenditures revenues deficits and output and construct two estimates for structural price differentials dynamics one for the average and one for each unit which optimally weight information contained in the data for all units on average expansionary fiscal disturbances produce positive while distortionary balance budget shocks produce negative price differential responses the negative price differentials responses in some units is partially explained by spillovers and labour supply effects

the propagation of uncertainty shocks rotemberg versus calvo this article studies the effects of uncertainty shocks on economic activity focusing on inflation using a vector autoregression i show that increased uncertainty has negative demand effects reducing gdp and prices i then consider standard new keynesian models with rotemberg type and calvo type price rigidities despite the belief that the two schemes are equivalent i show that they generate different dynamics in response to uncertainty shocks in the rotemberg model uncertainty shocks decrease output and inflation in line with the empirical results by contrast in the calvo model uncertainty shocks decrease output but raise inflation because of firms precautionary pricing motive

the analytics of svars a unified framework to measure fiscal multipliers ticities implied by the identification schemes generate a large dispersion in the estimates of tax and spending multipliers second i estimate fiscal multipliers consistent with prior distributions of the elasticities computed by a variety of empirical strategies and by employing a simple dynamic stochastic general equilibrium model i document three findings for the u s for the period 1947 2010 first the impact tax multiplier is close to 0 second the impact spending multiplier ranges between 0 35 and 1 third there is a large uncertainty in the estimates of fiscal multipliers at longer horizons yet the probability that the spending multiplier is larger than the tax multiplier is above 0 65 for up to three years after policy interventions

general revenue sharing and public sector unions abstract in this paper i find that in the context of a large intergovernmental general revenue sharing program implemented from 1972 to 1986 cities increased expenditures one for one with federal grants which is suggestive of a large flypaper effect furthermore i find that cities in states with pro union collective bargaining laws spent more than half of the transfers on increased wages while cities in states without such laws spent a greater fraction on increased government services these latter findings suggest that public sector unions play an important role in determining the usage and impact of intergovernmental grants

fiscal stimulus with learning by doing using a bayesian svar analysis we document that an increase in government purchases raises private consumption the real wage and total factor productivity tfp while reducing inflation each of these facts is hard to reconcile with both neoclassical and new keynesian models we extend a standard new keynesian model to allow for skill accumulation through past work experience following chang gomes and schorfheide 2002 an increase in government spending increases hours and induces skill accumulation and higher measured tfp and real wages in subsequent periods future marginal costs fall lowering future expected inflation and through the monetary policy rule the real interest rate consumption increases as a result

optimal simple and implementable monetary and fiscal rules welfare maximizing monetary and fiscal policy rules are studied in a model with sticky prices money and distortionary taxation the ramsey optimal policy is used as a point of comparison the main findings are the size of the inflation coefficient in the interest rate rule plays a minor role for welfare it matters only insofar as it affects the determinacy of equilibrium optimal monetary policy features a muted response to output interest rate rules that feature a positive response to output can lead to significant welfare losses the welfare gains from interest rate smoothing are negligible optimal fiscal policy is passive the optimal monetary and fiscal rule combination attains virtually the same level of welfare as the ramsey optimal policy

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions abstract this paper discusses the problems associated with using information about the signs of certain magnitudes as a basis for drawing structural conclusions in vector autoregressions we also review available tools to solve these problems for illustration we use dahlhaus and vasishtha s 2019 study of the effects of a u s monetary contraction on capital flows to emerging markets we explain why sign restrictions alone are not enough to allow us to answer the question and suggest alternative approaches that could be used

poverty and civil war revisiting the evidence abstract previous research has interpreted the correlation between per capita income and civil war as evidence that poverty is a main determinant of conflict in this paper we find that the relationship between poverty and civil war is spurious and is accounted for by historical phenomena that jointly determine income evolution and conflict in particular the statistical association between poverty and civil wars disappears once we include country fixed effects also using cross section data for 1960 to 2000 we find that once historical variables like european settler mortality rates and the population density in 1500 are included in civil war regressions poverty does not have an effect on civil wars these results are confirmed using longer time series from 1825 to 2000

rise and fall in the third reich social advancement and nazi membership abstract we explore the relationship between nazi membership and social advancement using a unique and highly detailed dataset of the german military during the third reich we find that membership of a nazi organisation is positively related to social advancement when measured by the difference between fathers and sons occupations however we find that this observed difference is mainly driven by individuals with different characteristics self selecting into these organisations rather than from a direct reward to membership this result is supported by an instrumental variable approach that uses the location of catholic priests sympathetic to the nazis as an instrument for nazi membership in addition we explore the determinants of nazi membership we find that ns membership is associated with higher socio economic background and human capital levels in line with occupational choice models of radicalisation

two fiscal policy puzzles revisited new evidence and an explanation abstract this paper examines two fiscal policy puzzles related to the effects of government spending shocks contrary to theoretical predictions recent empirical evidence suggests a crowding in of consumption and a depreciation of the real exchange rate after a government spending increase while several studies have been made to reconcile the conflicting results this paper provides new time series evidence and proposes an alternative explanation using the japanese data the empirical responses of consumption and the real exchange rate after government spending shocks are shown to be well replicated by an estimated medium scale open economy dynamic stochastic general equilibrium dsge model augmented with i edgeworth complementarity between private and government consumption and ii productive public capital furthermore sensitivity analysis suggests that the combination of edgeworth complementarity home bias and incomplete asset market allows the model to account for an immediate increase in consumption and for a hump shaped depreciation of the real exchange rate after a government consumption shock this result is potentially important in preventing the model from showing the consumption real exchange rate anomaly after the shock

a fiscal stimulus with deep habits and optimal monetary policy abstract a new keynesian model with deep habits and optimal monetary policy delivers a larger than 1 fiscal multiplier and consumption crowding in optimized taylor type rules dominate a conventional taylor rule consumption is crowded out if the taylor rule is suboptimal or if commitment is absent

a test of an efficiency model of grievance activity copyright by cornell university this is the publisher s version also available electronically from http ilr sagepub com content 45 1 3 refs

housework and fiscal expansions in an otherwise standard business cycle model with housework calibrated consistently with data on time use we discipline complementarity between consumption and hours worked and relate its strength to the size of fiscal multipliers evidence on the substitutability between home and market goods confirms that complementarity is an empirically relevant driver of fiscal multipliers however in a housework model substantial complementarity can be generated without imposing a low wealth effect which contradicts the microeconomic evidence also explicitly modeling housework matters for assessing the welfare effects of government spending which are understated by theories that neglect substitutability between home produced and market goods

what does a technology shock do a var analysis with model based sign restrictions abstract this paper estimates the effects of technology shocks in var models of the u s identified by imposing restrictions on the sign of impulse responses these restrictions are consistent with the implications of a popular class of dsge models with both real and nominal frictions and with sufficiently wide ranges for their parameters this identification strategy thus substitutes theoretically motivated restrictions for the atheoretical assumptions on the time series properties of the data that are key to long run restrictions stochastic technology improvements persistently increase real wages consumption investment and output in the data hours worked are very likely to increase displaying a hump shaped pattern contrary to most of the related var evidence results are not sensitive to a number of specification assumptions including those on the stationarity properties of variables

government purchases reloaded informational insufficiency and heterogeneity in fiscal vars using a large bayesian var we approximate the flow of information received by economic agents to investigate the effects of changes to government purchases we document robust evidence that informational insufficiency in conventional models explains inconsistent results across samples and commonly employed identifications in recursive structural vars and expectational vars furthermore we report heterogeneous effects of components of government purchases while aggregate government purchases do not appear to produce strong stimulative effects with output multiplier around 0 7 government investment components have multipliers well above unity state and local consumption which captures investment in education and health elicits a strong response

do government purchases affect unemployment we estimate the effect of government purchases on unemployment in 20 oecd countries for the period 1980 2007 an increase in government purchases equal to one percent of gdp is found to reduce unemployment by about 0 3 percentage points in the same year the effect is greater and more persistent under less employment friendly labour market institutions and greater and more persistent under a fixed exchange rate regime than under a floating regime the effect is also greater in downturns than in booms the effect on unemployment reflects a corresponding positive effect of increased government purchases on the employment to population rate this article is protected by copyright all rights reserved

the roles of foreign aid and education in the war on terror this paper presents a theoretical framework and some empirical results showing that the level of foreign aid received reduces the supply of terrorist attacks by recipient countries as does the recipient country s level of education due account is taken of endogeneity problems in producing these results they suggest that western democracies which are the main targets of terrorist attacks should invest more funds in foreign aid with a special emphasis on supporting education

a political economy theory of fiscal policy and unemployment this paper presents a political economy theory of fiscal policy and unemployment the underlying economic model is one in which unemployment can arise but can be mitigated by tax cuts and public spending increases such policies are fiscally costly but can be financed by issuing government debt policy decisions are made by a legislature consisting of representatives from different political districts the theory provides a positive account of the simultaneous determination of fiscal policy and unemployment the most important implication of the theory is that debt and unemployment levels should be positively correlated some evidence in support of this prediction is provided using data from a panel of developed countries

output fluctuations and fiscal policy u s state and local governments 1978 1994 abstract we study the cyclical properties of u s state and local government fiscal policy the budget surpluses of both are procyclical over short and medium term horizons procyclical surpluses are the result of strongly procyclical revenue and weakly procyclical expenditure these results hold whether aggregate u s wide fluctuations are controlled for or not federal grants to state and local governments are procyclical but this is due to aggregate output fluctuations with respect to state level output fluctuations federal grants are countercyclical the budget surpluses of trust funds and utilities are also procyclical but there is no evidence that this effect is stronger in states where balanced budget rules are tighter the cyclical patterns of state and local budget surpluses are affected by various political institutions for example budget surpluses are less procyclical in conservative states in an election year that occurs in good times state governments refrain from accumulating a larger surplus in bad times no such asymmetry between election and non election years is apparent

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

unemployment fiscal multipliers we estimate the effects of fiscal policy on the labor market in us data an increase in government spending of 1 percent of gdp generates output and unemployment multipliers respectively of about 1 2 percent at one year and 0 6 percentage points at the peak each percentage point increase in gdp produces an increase in employment of about 1 3 million jobs total hours employment and the job finding probability all rise whereas the separation rate falls a standard neoclassical model augmented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization extending the model to strengthen the complementarity in preferences to include unemployment benefits real wage rigidity and or debt financing with distortionary taxation only worsens the picture new keynesian features only marginally magnify the size of the multipliers when complementarity is coupled with price stickiness however the magnification effect can be large

is public expenditure productive abstract this paper considers the relationship between aggregate productivity and stock and flow government spending variables the empirical results indicate that i the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending ii military capital bears little relation to productivity and iii a core infrastructure of streets highways airports mass transit sewers water systems etc has most explanatory power for productivity the paper also suggests an important role for the net public capital stock in the productivity slowdown of the last fifteen years

has fiscal policy helped stabilize the postwar u s economy abstract in this paper i consider whether postwar fiscal policy has helped stabilize the u s economy i do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data these rules allow fiscal policies to respond to current and lagged output and labor hours i use the estimated policy rules to see if postwar fiscal policy reduces output volatility and or lengthens expansions and shortens recessions i find that fiscal policy in general provides little stability on either count i also find that the endogenous feedback links by themselves can provide some stabilization

man cessions fiscal policy and the gender composition of employment recessions are man cessions as men are disproportionately exposed to cyclical employment fluctuations we provide evidence that fiscal expansions stimulate predominantly female employment implying a further destabilization of the gender composition of employment in recessions our findings can be understood as a consequence of differences in the industry occupation mix of employment by gender

the effects of grievance activity on productivity this study develops and tests a production function that includes a plant s grievance filing rate as a determinant of productivity application of that function to data on nine unionized paper mill

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

the power of labor to grieve the impact of the workplace labor market and power dependence on employee grievance filing the authors examine a model of employee grievance activity that encompasses both workplace and labor market determinants and attempts to reconcile inconsistent findings in the literature by taking

changing macroeconomic dynamics at the zero lower bound this article develops a change point var model that isolates four major macroeconomic regimes in the us since the 1960s the model identifies shocks to demand supply monetary policy and spread yield using restrictions from a general equilibrium model the analysis discloses important changes to the statistical properties of key macroeconomic variables and their responses to the identified shocks during the crisis period spread shocks became more important for movements in unemployment and inflation a counterfactual exercise evaluates the importance of lower bond yield spread during the crises and suggests that the fed s large scale asset purchases helped lower the unemployment rate by about 0 6 percentage points while boosting inflation by about 1 percentage point

labor supply factors and economic fluctuations we propose a new v ar identication scheme that enables us to disentangle labor supply shocks from wage bargaining shocks identication is achieved by imposing robust sign restrictions that are derived from a new keynesian model with endogenous labor force par ticipation according to our analysis on us data over the period 1985 2014 labor supply shocks and wage bargaining shocks are important drivers of output and unemployment both in the short run and in the long run these results suggest that identication strategies used in estimated new keynesian models to disentangle labor market shocks may be misguided we also analyze the behavior of the labor force participation rate through the lenses of our model wend that labor supply shocks are the main drivers of the participation rate and account for about half of its decline in the aftermath of the great recession

the effects of public spending externalities abstract we conduct a positive analysis on the effects of externalities produced by government spending to this effect we estimate using u s data an rbc model with two salient features first we allow government consumption to directly affect the marginal utility of consumption second we allow public capital to shift the productivity of private factors we provide an identification analysis that supports the strategy adopted for estimating the parameters governing these two channels on one hand private and government consumption are robustly estimated to be substitute goods because of substitutability labor supply reacts little to a government consumption shock so the estimated output multiplier is much lower than in models with separabilities on the other hand our results point towards public investment being unproductive

the economics of counterterrorism a survey we provide a review of theoretical and empirical contributions on the economic analysis of terrorism and counterterrorism we argue that simple rational choice models of terrorist behavior in the form of cost benefit models already provide a well founded theoretical framework for the study of terrorism and counterterrorism we also hint at their limitations which relate to the failure of accounting for the dynamics between terrorism and counterterrorism that may produce unintended second order effects as well as for the costs associated with counterterrorism and its international dimension we reevaluate previously proposed counterterrorism strategies accordingly finally in the light of our findings we discuss interesting areas of future research

neutral technology shocks and the dynamics of labor input results from an agnostic identification this article studies the dynamic response of labor input to neutral technology shocks it uses benchmark dynamic stochastic general equilibrium models enriched with labor market search and matching frictions and investment specific technological progress that enables a new agnostic identification scheme based on sign restrictions on a structural vector autoregression svar the estimation supports an increase of labor input in response to neutral technology shocks this finding is robust across different perturbations of the svar model

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

a fiscal stimulus and jobless recovery we analyze the effects of a government spending expansion in a dynamic stochastic general equilibrium model with mortensen pissarides labor market frictions deep habits in private and public consumption investment adjustment costs a constant elasticity of substitution ces production function and adjustments in employment at both intensive and extensive margins the combination of deep habits and ces technology is crucial the presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus while an elasticity of substitution between capital and labor in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery

the effects of discretionary fiscal policy on macroeconomic aggregates a reappraisal fiscal stimuli to recover a cascade of academic and layman articles debate the effectiveness of fiscal policy in stimulating the economy backed up by different economic models and empirical support this essay surveys the theoretical predictions and recent empirical vector autoregression var evidence on the short run effects of discretionary fiscal policy on macroeconomic aggregates

government spending entry and the consumption crowding in puzzle this article documents empirically that net firm entry robustly rises after a u s government spending expansion we use this new finding to test the empirical validity of various model features that have been proposed to generate consumption crowding in after positive expenditure shocks endogenous entry models typically fail to generate the observed joint increase in consumption and entry model features that dampen the wealth effect such as rule of thumb households or complementarity between labor and consumption in preferences tend to reduce entry we show that utility or productivity enhancing public spending can reconcile the model with our documented fact and performs well empirically

fiscal policy and occupational employment dynamics we document substantial heterogeneity in occupational employment dynamics in response to government spending shocks in the united states employment rises most strongly in service sales and office pink collar occupations by contrast employment in blue collar occupations is hardly affected by fiscal policy we provide evidence that occupation specific changes in labor demand are key for understanding these findings we develop a business cycle model that explains the heterogeneous occupational employment dynamics as a consequence of composition effects due to heterogeneous employment changes across industries and occupation specific within industry employment shifts due to differences in the short run substitutability between labor and capital services across occupations

fiscal policy pricing frictions and monetary accommodation this paper empirically investigates whether the theoretical conditions for government expenditure expansions to be effective hold for the data we ask whether the necessary conditions for fiscal effectiveness are relevant on average and in special circumstances that capture features of the recent crisis fiscal policy can be an effective countercyclical tool if monetary policy accommodates the fiscal expansion if expectations about future output growth and inflation are constant and if structural relationships are invariant to the policy change recent expansions are unlikely to produce large output multipliers or have important debt or inflation effects credible deficit and debt reduction schemes can produce sizeable output multipliers fabio canova and evi pappa

public expenditures and the unemployment rate in the american states panel evidence we reexamine the unemployment rate ur government expenditure nexus in a panel of 50 state and local governments slgs over the period 1977 2006 to provide new pre recession empirical evidence that helps put the expectations on the effects of the federal relief to slgs in a broader context we found that 1 per capita real public spending total and capital assistance and subsidies wages and salaries and social insurance categories was part of a cointegrating relationship with ur and real per capita state personal income 2 with the exception of social insurance other spending variables when statistically significant actually had a depressing effect on ur the magnitude of this effect however was generally small ur was most sensitive to increases in wages and salaries 3 long term causality analysis based on panel error correction coefficients provided consistent evidence of a causal effect from spending to ur but less consistent evidence of such effect in the opposite direction soci

fiscal policy and lending relationships this paper studies how fiscal policy affects loan market conditions in the us first it conducts a structural vector autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock while lending increases second it illustrates that these results are mimicked by a dynamic stochastic general equilibrium model where the bank spread is endogenized via the inclusion of a banking sector exploiting lending relationships third it shows that lending relationships represent a friction that generates a financial accelerator effect in the transmission of the fiscal shock