English, Article, Journal or magazine article edition: Short-Term Fiscal Spillovers in a Monetary Union Agnes Benassy-Quere

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Bookmark: http://trove.nla.gov.au/version/159305
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Short-Term Fiscal Spillovers in a Monetary Union
Author
  • Agnes Benassy-Quere
Physical Description
  • preprint
Notes
  • In this paper, a simple, two-country, static model is developed in order to analyze short-run fiscal spillovers in a monetary union, depending on (i) the way fiscal policy is implemented (expenditures versus net taxes), (ii) the strength of the supply-side channel of tax policies compared to the demand-side channel, and (iii) the extent of central bank accommodation. It is shown that both a spending expansion and a tax cut produce positive spillovers on foreign output provided the central bank accommodates the shock, except if tax cuts have large supply-side effects. If the central bank does not accommodate the shock, the spillovers of a fiscal expansion are generally negative. However fiscal spillovers can be positive in the case of a tax cut because induced disinflation reduces or even reverses the reaction of the central bank. Due to financial liberalization, it is possible that demand-side channels of fiscal policy have become less powerful compared to supply-side channels. To the extent that interest-rate variations are smooth, this could reduce the positive spillover of a spending expansion while turning the spillover of a tax cut into the negative territory.
  • Fiscal policy; theoretical model; spillovers; monetary union; short run; tax and budget policy; models; monetary block
  • RePEc:cii:cepidt:2006-13
Language
  • English
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