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The Effects of Fiscal Instruments on the Economy of Lithuania

Sigitas Karpavicius ()
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Sigitas Karpavicius: University of New South Wales

No 4, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: The goal of this paper is to examine the dynamic effects of fiscal instruments in Lithuania on the economy and welfare. In the analysis, a calibrated dynamic stochastic general equilibrium model for Lithuania is employed. The calculation implies that 9-16 percent of tax cuts are self-financing in the long run. It suggests that the slope of Laffer curve in Lithuanian economy is rather flat. The analysis of effects of different tax cuts shows that the impact of 1 percentage point permanent decrease in statutory tax rate on gross domestic product is very small (within the range of -0.15 through 0.15 percent in all cases). The estimated government expenditure multiplier has a different sign in the long run when various financing sources are used to balance the government budget.

Keywords: fiscal policy; degree of self-financing of tax cuts; impact of tax cuts; government expenditure multiplier (search for similar items in EconPapers)
JEL-codes: E62 H24 H25 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-04-20
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