Systematic fiscal policy and macroeconomic performance: A critical overview of the literature

Claire Reicher

No 2014-29, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The literature on systematic fiscal policy and macroeconomic performance in industrialized countries is large but fragmented. Based on a broad overview of that literature, several patterns emerge. The empirical literature points toward strongly anticyclical policy, which consists of procyclical tax revenues, acyclical tax rates and government purchases, and countercyclical transfer payments. Consolidation in response to the debt has come primarily through adjustments to taxes and possibly purchases. Furthermore, a large government is associated with reduced macroeconomic volatility. The theoretical literature on anticyclical fiscal policy, meanwhile, has gone from mostly focusing on government purchases and tax rates toward beginning to focus on transfer payments, although more quantitative work remains to be done in linking theory with empirics. At the same time, a policy literature has begun to develop, which has applied lessons from the theoretical literature in order to understand different consolidation scenarios and different proposed fiscal rules, particularly in Europe.

Keywords: fiscal policy; fiscal rule; fiscal response function; deficits; taxes; government purchases; transfer payments (search for similar items in EconPapers)
JEL-codes: E62 E63 H30 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201429

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