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Laffer curves and fiscal multipliers: lessons from Mélèze model

Benoît Campagne () and Aurélien Poissonnier

Documents de Travail de l'Insee - INSEE Working Papers from Institut National de la Statistique et des Etudes Economiques

Abstract: We use the two country DSGE model of the Euro area Meleze developed at Insee to perform ex ante fiscal reforms evaluations. The main features of the model compare with standard tools developed in international institutions and central banks. In practice, tax rates are below the government revenues maximizing rate identified by generalized equilibrium Laffer curves in the model. The extent of this result nevertheless depends on the degree of monopolistic competition on the goods market. We also analyse short and long term multipliers for numerous fiscal tools. These compare to standard DSGE simulations as well as to the macroeconometric model Mésange. However, depending on the behaviour of fiscal and monetary authorities, short-term fiscal multipliers variations are substantial, from 0.2 up to 1 point around the baseline in the most extreme case. All in all, there exists room of manoeuvre for so called mixed-strategies fiscal policy.

Keywords: fiscal multiplier; Laffer curve; DSGE model; monetary union (search for similar items in EconPapers)
JEL-codes: E10 E62 F45 (search for similar items in EconPapers)
Date: 2016
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