Implications of the Slowdown in Trend Growth for Fiscal Policy in a Small Open Economy

Alexander Beames, Mariano Kulish and Nadine Yamout

No 2020-17, Working Papers from University of Sydney, School of Economics

Abstract: We set up and estimate a small open economy model with fi scal policy in which trend growth can permanently change. The magnitude and timing of the change in trend growth are estimated alongside the structural and fiscal policy rule parameters. Around 2003:Q3, trend growth in per capita output is estimated to have fallen from just over 2 per cent to 0.6 per cent annually. The slowdown brings about a lasting transition which in the short-run decreases consumption tax revenues but increases them in the long-run changing permanently the composition of tax revenues and temporarily increasing the government debt-to-output ratio..

Keywords: Open economy; trend growth; scal policy; real business cycles; estimation; structural breaks (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
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Working Paper: Implications of the slowdown in trend growth for fiscal policy in a small open economy (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:syd:wpaper:2020-17

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