Consumption smoothing through fiscal policy in OECD and EU countries
By: Adriana Arreaza, Bent E. Sørensen, Oved Yosha.
Contributors: Sørensen, Bent E.; Yosha, Oved.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 6372; Working paper series (National Bureau of Economic Research) -- working paper no. 6372.
Publisher: National Bureau of Economic Research
Published: 1998
Place of publication: Cambridge, MA
Language: eng
Number of pages: 34
Subjects: Consumption (Economics) -- Government policy -- OECD countries -- Econometric models.; Consumption (Economics) -- Government policy -- European Union countries -- Econometric models.; Deficit financing -- OECD countries -- Econometric models.; Deficit financing -- European Union countries -- Econometric models.; Expenditures, Public -- European Union countries -- Econometric models.; Expenditures, Public -- OECD countries -- Econometric models.; Transfer payments -- OECD countries -- Econometric models.; Transfer payments -- European Union countries -- Econometric models.
Description: We measure the amount of smoothing achieved through various components of the government deficit in EU and OECD countries. For EU countries, at the 1-year frequency percent of shocks to GDP are smoothed via government consumption, 18 percent via transfers, 5 percent via subsidies, while taxes provide no smoothing. The results for OECD countries are similar. Government transfers provide more smoothing of negative than of positive shocks among EU countries. There seems to be no trade-off between high government deficits in a country and the ability to smooth consumption. We find that in countries where there is delegation' of power or where fiscal targets are negotiated effectively by coalition members, consumption smoothing via government consumption and government transfers is considerably higher. We interpret this finding as evidence that effective budgetary institutions can accomplish efficient consumption smoothing via government deficit spending and lower average deficits.
Notes: "January 1998."

JEL no. E2, E6, F15, G15.

Includes bibliographical references (p. 21-23).

Electronic access limited to Binghamton University faculty, staff and students for instructional and research purposes only.

Electronic version available via the Internet at the NBER World Wide Web site.