Effects of Fiscal Policy Shocks in an Open Economy

What is the impact of fiscal policy shocks on key macroeconomic variables in Canada? This question triggered renewed interest in the aftermath of the 2008-09 Great Recession. Indeed, as in many advanced economies, fiscal policy in Canada following the recession started with an expansionary phase to boost domestic demand. It progressed to an adjustment phase to reduce public debt and ensure long-term fiscal sustainability and sustained growth. This paper analyzes the effects of fiscal policy shocks on the Canadian economy, building on the sign-restrictions-VAR approach. Unlike previous studies, this paper explicitly accounts for spillovers from the U.S., Canada's main trading partner, and for oil price fluctuations. The findings show that the size and sign of the spending and tax revenue multipliers depend on whether the analysis controls for the exogenous factors. The tax-cut multiplier varies between 0.2 and 0.5, while the spending multiplier ranges between 0.2 and 1.1; the spending multiplier tends to be larger than the tax-cut multiplier over the past two decades.

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Bibliographic Details
Main Author: Belinga, Vincent
Format: Working Paper biblioteca
Language:English
en_US
Published: World Bank, Washington, DC 2016-04
Subjects:FORECASTS, MONETARY POLICY, DURABLE GOODS, OIL PRICE, FREE TRADE AGREEMENT, MULTIPLIERS, LAGS, SUPPLY CURVE, INCOME, INTEREST, EXPECTATIONS, BUSINESS INVESTMENT, REAL EXCHANGE RATES, GOVERNMENT SPENDING, INFORMATION FLOWS, INTEREST RATE, EXCHANGE, REAL GDP, SPENDING, ECONOMIC DEVELOPMENTS, PERPETUITY, SERVICES, EXPORTS, REVENUES, FISCAL POLICY, TAX CHANGES, VARIABLES, PRICE, TAX, INCOME TAX, RESERVE, FREE TRADE, CORPORATE INCOME TAX, INTERNATIONAL BANK, ECONOMIC OUTLOOK, BUDGET, TAX CUTS, PUBLIC POLICY, TRADE BALANCE, OIL PRICES, GLOBAL ECONOMY, ADVANCED ECONOMIES, GROSS DEBT, RESERVE BANK, EXOGENOUS VARIABLES, CORPORATE INCOME TAXES, EXCHANGE RATES, TRADING, BASE YEAR, ECONOMETRICS, RECURRENT EXPENDITURES, GLOBALIZATION, DEBT, NET EXPORTS, PRIVATE INVESTMENT, RETURN, BUSINESS CYCLE, OPEN ECONOMY, INTERNATIONAL ECONOMICS, LABOR, TAX REVENUES, INVENTORIES, MONETARY AUTHORITIES, CORPORATE TAX, PUBLIC INVESTMENT, TAXES, EXPENDITURE, UNEMPLOYMENT, INCOME TAXES, CONSUMPTION, FEDERAL RESERVE, AGGREGATE SUPPLY, FEDERAL RESERVE BANK, VOLATILITY, CAPITAL MOBILITY, UNEMPLOYMENT RATE, FUTURE, VALUE, COMPETITIVENESS, TAX INCREASES, FEDERAL BUDGET, MACROECONOMICS, NATIONAL INCOME, AGGREGATE DEMAND, EXPENDITURES, ECONOMY,
Online Access:http://documents.worldbank.org/curated/en/2016/04/26285651/effects-fiscal-policy-shocks-open-economy-evidence-canada
https://hdl.handle.net/10986/24229
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