Savers, Spenders and Fiscal Policy in a Small Open Economy

Egil Matsen, Tommy Sveen () and Ragnar Torvik

The B.E. Journal of Macroeconomics, 2007, vol. 7, issue 1, 35

Abstract: This paper extends the savers-spenders theory of Mankiw (2000) to analyze fiscal policy in a small open economy with endogenous labor supply. It is first shown that tax cuts have a short-run contractionary effect on domestic production, and increased public spending has a short-run expansionary effect. Although consistent with recent empirical work, this result contrasts with those of most other theoretical models. Transitory changes in demand have permanent real effects in our model, and we discuss the implications for real exchange rate dynamics. We also show how ``rational" agents may magnify or dampen the responses of ``irrational" agents, and discuss how, unlike in previous contributions, this is in our model purely a result of the shape of rational agents' utility functions.

Keywords: rule-of-thumb consumers; fiscal policy; open economy (search for similar items in EconPapers)
Date: 2007
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.2202/1935-1690.1529 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Savers, Spenders and Fiscal Policy in a Small Open Economy (2005)
Working Paper: Savers, Spenders and Fiscal Policy in a Small Open Economy (2004)
Working Paper: Savers, Spenders and Fiscal Policy in a Small Open Economy (2004)
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: https://EconPapers.repec.org/RePEc:bpj:bejmac:v:7:y:2007:i:1:n:22

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejm/html

DOI: 10.2202/1935-1690.1529

Access Statistics for this article

The B.E. Journal of Macroeconomics is currently edited by Arpad Abraham and Tiago Cavalcanti

More articles in The B.E. Journal of Macroeconomics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().