Permanent vs Temporary Fiscal Expansion in a Two-Sector Small Open Economy Model

Olivier Cardi () and Romain Restout ()
Additional contact information
Olivier Cardi: ERMES, Universit¶e Panth¶eon-Assas Paris 2, IRES, Universit¶e catholique de Louvain

No 720, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: This contribution shows that the duration of a fisscal shock together with sectoral capital intensity matter in determining the dynamic and steady-state effects in an intertemporal-optimizing two-sector small open economy model. First, unlike a permanent shock, net foreign asset position always worsens in the long-run after a transitory fiscal expansion. Second, steady-state changes in physical capital depend on sectoral capital-labor ratios but their signs may be reversed compared to the corresponding permanent public policy. Third, investment and the current account may now adjust non monotonically. Fourth, a temporary fiscal shock always crowds-out (crowds-in) investment in the long-run whenever the non traded (traded) sector is more capital intensive.

Keywords: current account; government spending; nontraded goods; temporary shocks (search for similar items in EconPapers)
JEL-codes: E22 E62 F32 F41 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2007-09
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
ftp://ftp.gate.cnrs.fr/RePEc/2007/0720.pdf (application/pdf)

Related works:
Working Paper: Permanent vs.temporary fiscal expansion in a two-sector small open economy model (2008)
Working Paper: Permanent vs Temporary Fiscal Expansion in a Two-Sector Small Open Economy Model (2007)
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:gat:wpaper:0720

Access Statistics for this paper

More papers in Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon Contact information at EDIRC.
Bibliographic data for series maintained by Nelly Wirth ( this e-mail address is bad, please contact ).