Boosting Confidence: Is there a Role for Fiscal Policy?

Panagiotis Konstantinou () and Athanasios Tagkalakis
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Panagiotis Konstantinou: Department of Economics, University of Macedonia

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: This paper investigates the widely held view that expansionary fiscal policy can boost consumer and business confidence, which will stimulate private spending and sustain economic activity. We find evidence in favor of this conjecture, i.e., cuts in direct taxes generate a positive effect on consumer and business confidence, while the same applies in cases of higher non-wage government consumption. However, higher government wage bills and government investment reduce confidence, with the effect being more pronounced when the debt to GDP ratio is high, possibly because they entail a permanent increase in the size of the public sector, which would have to be financed by higher future taxes.

Keywords: Fiscal Policy; Consumer Confidence; Business Confidence; Fiscal Stimulus of Confidence. (search for similar items in EconPapers)
JEL-codes: E62 H31 H32 (search for similar items in EconPapers)
Date: 2011-03, Revised 2011-03
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 (29)

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Related works:
Journal Article: Boosting confidence: Is there a role for fiscal policy? (2011)
Working Paper: Boosting confidence: is there a role for fiscal policy? (2010)
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