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Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies; Ricardian Equivalence, Fiscal Stabilization, and EMU

Paul Masson () and Tamim Bayoumi

No 98/112, IMF Working Papers from International Monetary Fund

Abstract: This paper looks at theoretical and empirical issues associated with the operation of fiscal stabilizers within an economy. It argues that such stabilizers operate most effectively at a national, rather than local, level. As differing cycles across regions tend to offset each other for the country as a whole, national fiscal stabilizers are not associated with the same increase in future tax liabilities for the region as local ones. Accordingly, the negative impact from the Ricardian effects associated with these tax liabilities is smaller. Empirical work on data across Canadian provinces indicates that local stabilizers are only 1/3 to ½ as effective as national stabilizers that create no future tax liability.

Keywords: European Economic and Monetary Union; Fiscal policy; Fiscal Stabilization, Levels of Government, Ricardian Equivalence, tax liability, private consumption, fiscal stabilizers (search for similar items in EconPapers)
Date: 1998-08-01
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Related works:
Journal Article: Liability-Creating versus Non-liability-Creating Fiscal Stabilisation Policies: Ricardian Equivalence, Fiscal Stabilisation, and EMU (1998) Downloads
Working Paper: Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization and EMU (1998) Downloads
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