Short-run Macroeconomic Effects of Discretionary Fiscal Policy Changes

Piotr Bujak and Joanna Siwinska-Gorzelak

No 261, CASE Network Studies and Analyses from CASE-Center for Social and Economic Research

Abstract: The standard Keynesian view of fiscal policy holds that in short-run fiscal adjustments (expansions) reduce (stimulate) aggregate demand and due to sticky wages, prices or other market rigidities, these demand shifts affect the factors of production and output. These conventional predictions have been challenged by the observation of episodes of perverse effects of fiscal policy – so called “non-Keynesian” effects. This paper reassess the short-run consequences of fiscal policy. We provide evidence that consumption reacts in a non-linear fashion to discretionary fiscal policy changes. The results of our estimations show that households tend to behave in non-Keynesian manner when the fiscal situation of a country is bad, i.e. when public debt or fiscal deficit is large, while Keynesian behavior dominates, when the fiscal situation is sound. Our results suggest that, similarly to OECD countries, consumption function does not react in linear fashion to changes in fiscal policy also in transition economies.

Keywords: fiscal policy; Non-Keynesian effects (search for similar items in EconPapers)
Pages: 32 Pages
Date: 2003
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Citations: View citations in EconPapers (9)

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Chapter: The Short-Run Macroeconomic Effects of Discretionary Fiscal Policy Changes (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:sec:cnstan:0261

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