The Government in SNA-Compliant DSGE Models

F. de-Córdoba Gonzalo (), Benedetto Molinari and Jose Torres ()
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F. de-Córdoba Gonzalo: Department of Economics, Universidad de Málaga and ESCP, Málaga, Spain

The B.E. Journal of Macroeconomics, 2022, vol. 22, issue 2, 613-642

Abstract: The government size in developed economies expanded remarkably after the Second World War. This growth shaped the role of the government as a key player in the economic activity and the aggregate dynamics of a country. However, the way in which the government is represented in DSGE models is often reductive, containing homogeneous public spending and a few distortionary taxes without clear counterparts in fiscal data. This paper shows how dynamic general equilibrium models can incorporate a detailed government sector as defined in the System of National Accounts (SNA). This government features six types of public expenditures (i.e. the government’s intermediate consumption, public wage bill, debt service, public investment, and transfers to households both in-kind and other-than-in-kind), and five distortionary taxes (i.e. consumption tax, capital and labor income taxes, corporate tax and social contributions).

Keywords: government; public sector; DSGE models; government spending; National Accounts; OECD data (search for similar items in EconPapers)
JEL-codes: J24 J31 O33 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/bejm-2020-0120

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