The Impacts of the Fiscal-Consolidation Policies in Developed Economies under the Free Trade Agreements

Kazuhiko Oyamada

No 330919, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: The purpose of this study is to clarify the impacts of the fiscal-consolidation policies in developed economies when the economies are involved in an FTA, using a perfect-foresight dynamic AGE model of global trade. The model used in this paper assumes endogenous growth with public capital along with private capital, and can be used to answer questions when the response of intertemporal variables such as savings and investment are important, but also the structure of the global economy is relevant. The parameters and exogenous variables are calibrated assuming that the benchmark data is obtained from an economy in the stationary state. Simulations with the model revealed that the policies that decrease public capital, such as cutting in the public expenditures or abolition of taxes, may have a strong impacts on the global economy through trade, and would finally decelerate the economic growth. On the other hand, the countries that performed the policies might be better off if we focus on the welfare level that is defined by the private consumption.

Keywords: International Relations/Trade; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 25
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:330919

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