Template-Type: ReDIF-Paper 1.0
Author-Name: Julia Darby
Author-Name-First: Julia
Author-Name-Last: Darby
Author-Email: julia.darby@strath.ac.uk
Author-Workplace-Name: Department of Economics, University of Strathclyde
Author-Name: Jacques  Melitz
Author-Name-First: Jacques 
Author-Name-Last: Melitz
Author-Email: J.Melitz@hw.ac.uk
Author-Workplace-Name: Department of Economics, School of Management and Languages, Heriot-Watt University, Edinburgh.
Title: Joint estimates of automatic and discretionary fiscal policy for the OECD 
Abstract: Official calculations of automatic stabilizers are seriously flawed since they rest on the assumption that the only element of social spending that reacts automatically to the cycle is unemployment compensation. This puts into question many estimates of discretionary fiscal policy. In response, we propose a simultaneous estimate of automatic and discretionary fiscal policy. This leads us, quite naturally, to a tripartite decomposition of the budget balance between revenues, social spending and other spending as a bare minimum. Our headline results for a panel of 20 OECD countries in 1981-2003 are .59 automatic stabilization in percentage-points of primary surplus balances. All of this stabilization remains following discretionary responses during contractions, but arguably only about 3/5 of it remains so in expansions while discretionary behavior cancels the rest. We pay a lot of attention to the impact of the Maastricht Treaty and the SGP on the EU members of our sample and to real time data.
Length: 37 pages
Creation-Date: 2011-04
Revision-Date: 
Publication-Status: 
File-URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/2011/11-22_Final.pdf
File-Format: Application/pdf
Number: 1122
Classification-JEL: E62,H53,H62.
Keywords: Fiscal stabilization, automatic stabilizers, discretionary policy.
Handle: RePEc:str:wpaper:1122