Effects of Fiscal Stimulus in Structural Models

Abstract

The paper assesses, using seven structural models used heavily by policymaking institutions, the effectiveness of temporary fiscal stimulus. Models can, more easily than empirical studies, account for differences between fiscal instruments, for differences between structural characteristics of the economy, and for monetary-fiscal policy interactions. Findings are: (i) There is substantial agreement across models on the sizes of fiscal multipliers. (ii) The sizes of spending and targeted transfers multipliers are large. (iii) Fiscal policy is most effective if it has some persistence and if monetary policy accommodates it. (iv) The perception of permanent fiscal stimulus leads to significantly lower initial multipliers.Budget deficits;Economic forecasting;Economic models;Government expenditures;Public debt;Stabilization measures;Taxes;fiscal stimulus, inflation, real interest rate, aggregate demand, fiscal policy, fiscal multipliers, monetary policy, real interest rates, fiscal instruments, fiscal actions, government spending, fiscal instrument, tax cut, tax cuts, fiscal multiplier, fiscal shocks, tax rates, fiscal policies, discretionary fiscal stimulus, fiscal measures, expansionary fiscal, fiscal action, fiscal deficits, fiscal space, fiscal model, inflation targeting, fiscal shock, fiscal policy actions, fiscal expansion, rate of inflation, fiscal authorities, public finances, fiscal contractions, fiscal deficit, fiscal expansions, government spending multipliers, inflationary pressure, fiscal response, fiscal positions, increase in consumption, fiscal position, tax changes, fiscal balances, fiscal policies division, inflation response, expansionary fiscal contractions, inflation targeting regime, fiscal impulses, fiscal reasons, fiscal measure, primary deficit, fiscal policy rule, public finance, inflationary pressures, fiscal balance, fiscal policy stimulus, government spending shocks, size of multipliers, tax burden, inflation objective, reduction in transfers, increase in expenditures, tax reform, macroeconomic analysis