Alternative Public Spending Rules and Output Volatility

Jean-Paul Lam and William Scarth
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William Scarth: McMaster University

Macroeconomics from University Library of Munich, Germany

Abstract: One of the central lessons learned from the Great Depression was that adjusting government spending each year to balance the budget increases the volatility of output. We compare this policy with one that involves running temporary deficits and surpluses and an average budget balance of zero. Our analysis allows monetary policy to adjust to a change in fiscal regime, and the specifications for aggregate demand and supply are consistent with the "new neoclassical synthesis." Our results give only limited support to the conventional wisdom on fiscal rules and stability of output.

Keywords: Built-in stability; expectational IS; foward-looking Phillips curve. (search for similar items in EconPapers)
JEL-codes: E52 E58 E62 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2002-11-12
New Economics Papers: this item is included in nep-cdm
Note: Type of Document - PDF; prepared on UNIX Blade 100; to print on all; pages: 22; figures: none
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Working Paper: Alternative Public Spending Rules and Output Volatility (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0211005

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