Boosting confidence: is there a role for fiscal policy?
Panagiotis Konstantinou and
Athanasios Tagkalakis ()
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Panagiotis Konstantinou: University of Macedonia
No 113, Working Papers from Bank of Greece
This paper investigates the widely held view that expansionary fiscal policy can boost consumer and business confidence, which will stimulate private spending and sustain economic activity. We find evidence in favor of this conjecture, i.e., cuts in direct taxes generate a positive effect on consumer and business confidence, while the same applies in cases of higher non-wage government consumption. However, higher government wage bills and government investment reduce confidence, possibly because they entail a permanent increase in the size of the public sector, which would have to be financed by higher future taxes.
Keywords: Fiscal Policy; Consumer Confidence; Business Confidence; Fiscal Stimulus of Confidence (search for similar items in EconPapers)
JEL-codes: E62 H31 H32 (search for similar items in EconPapers)
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Persistent link: http://EconPapers.repec.org/RePEc:bog:wpaper:113
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