Asymmetric Effects of Government Spending: Does the Level of Real Interest Rates Matter?

Michael Devereux and Woon Gyu Choi

No 666, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: This paper examines empirical issues on asymmetric effects of government spending. Increases in government spending under low real interest rates are not associated with the same increases in future tax liabilities as those under high real interest rates. Consequently, the negative impact from the Ricardian effect is smaller with lower real rates. Our empirical work on US data, using threshold regression models, provides new evidence that an expansionary government spending is more conducive to real activities when real rates are low. We also find asymmetric effects on interest rates and threshold effects associated with substitution between financing methods.

Keywords: fiscal policy; government spending; Ricardian equivalence; real interest rates; regime switching; threshold vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 C51 E62 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-mon
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http://repec.org/esFEAM04/up.27639.1080675636.pdf (application/pdf)

Related works:
Journal Article: Asymmetric Effects of Government Spending: Does the Level of Real Interest Rates Matter? (2006)
Working Paper: Asymmetric Effects of Government Spending: Does the Level of Real Interest Rates Matter? (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:666

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