EconPapers    
Economics at your fingertips  
 

Government Spending, Distortionary Taxation and the International Transmission of Business Cycles

Maria Pia Olivero ()

Journal of Economic Integration, 2010, vol. 25, pages 403-426

Abstract:

We study the international transmission of aggregate TFP shocks by introducing demand-side shocks to government spending into an otherwise standard DSGE two-country, two-good model. In the model the substitutability in consumption between private and public goods works to limit international risk sharing. Further, the distortive taxation used to finance the provision of public goods works to increase the correlation of employment, investment and output across countries relative to standard models that lack this friction. In the quantitative analysis we can bring the predictions of the theory closer to the observed properties of the data on the comovement of macroeconomic variables between the United States and other OECD countries. We are also able to provide a potential explanation to some of the puzzles in the international RBC literature, as identified by Backus, Kehoe and Kydland (1992). The topic we study is fundamentally relevant and timely at a time when the crisis in the United States has spread to several other countries in the developed world, forcing governments to engage in active fiscal policy to help their economies in recession.

Keywords: International RBC; Fiscal Policy; Demand-side Shocks (search for similar items in EconPapers)
JEL-codes: F41 F42 (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ris:integr:0510

Access Statistics for this article

Journal of Economic Integration is edited by Jong-Eun Lee

More articles in Journal of Economic Integration from Center for Economic Integration, Sejong University
Contact information at EDIRC.
Series data maintained by Jong-Eun Lee ().

 
Page updated 2014-03-31
Handle: RePEc:ris:integr:0510