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Fiscal Austerity in Emerging Market Economies
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In this paper, the authors build a small open economy RBC model with financial frictions to analyze the incidence of expansionary fiscal consolidations in emerging market economies and calibrate the model to India, a proto-typical EME.Abstract:
We build a small open economy RBC model with financial frictions to analyze the incidence of expansionary fiscal consolidations in emerging market economies (EMEs). We calibrate the model to India, a proto-typical EME. We show that a spending based fiscal consolidation has an expansionary effect on output. In contrast, tax based consolidations are always contractionary. Either measure of consolidation, however, tends to increase the fiscal deficit and therefore the sovereign risk premia in our framework. Our findings support the results in the IMF WEO (2010), that tax based consolidation measures are more costly (in terms of GDP losses) than spending based consolidations in the short run. We identify new mechanisms that underlie the dynamics of fiscal reforms and their implications for successful fiscal consolidations.read more
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The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks
TL;DR: This paper investigated the impact of tax changes on economic activity and found that tax increases are highly contractionary and that the behavior of output following these more exogenous changes indicates that the effects of tax increases were strongly significant, highly robust, and much larger than those obtained using broader measures of tax change.
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Fiscal Policy in General Equilibrium
Marianne Baxter,Robert G. King +1 more
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Understanding the Effects of Government Spending on Consumption
TL;DR: In this paper, the authors extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers and show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending.
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Solving Linear Rational Expectations Models
TL;DR: In this paper, the authors describe methods for solving general linear rational expectations models in continuous or discrete timing with or without exogenous variables, based on matrix eigenvalue decompositions.
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Business Cycles in Emerging Economies:The Role of Interest Rates
TL;DR: In this paper, the empirical relation between the interest rates that emerging economies face in international capital markets and their business cycles was investigated, showing that interest rate shocks alone can explain 50% of output fluctuations and can generate business cycle patterns consistent with the regularities described above and with the major booms and recessions in Argentina in the last two decades.