Fiscal episodes in the EMU: Elasticities and non-keynesian effects

Antonio Afonso and Frederico Leal

No 2019/97, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We estimate short-and long-run elasticities of private consumption forfiscal instruments,using a Fixed Effects model for the19-euroarea countries duringthe period of 1960-2017, to asses show fiscal elasticities vary during fiscal episodes.According to the results, positive “tax revenue”elasticities indicate that consumers have aRicardian behaviour, whereby they perceive an increase in taxation to bea sign of future government spending. “Social benefits”appear to have a non-keynesian effecton private consumption. In addition, using a narrative approach to identify fiscal consolidations, it is seen that private consumption continues to exhibit a non-keynesian response to tax increases, both in the short and long-run, and “other expenditures” have a recessive impact during “normal times”. Furthermore, “social benefits”are more contractionary in consolidations than in both expansions and “normal times”. Additionally, after the launch of the EMU, expansionary fiscal consolidations became harder to observe, and “other expenditure”and “investment”lost their non-keynesian role.

Keywords: Non-Keynesian Effects; Fiscal Episodes; Fiscal policy; Fiscal Elasticities; EMU (search for similar items in EconPapers)
JEL-codes: B22 E12 E62 (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-his and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Fiscal Episodes in the EMU: Elasticities and Non-Keynesian Effects (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp0972019

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