Citation

Discussion Paper Details

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Title: Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization and EMU

Author(s): Tamim Bayoumi and Paul R Masson

Publication Date: October 1998

Keyword(s): Fiscal Stabilization, levels of government and Ricardian Equivalence

Programme Area(s): International Macroeconomics

Abstract: This paper looks at theoretical and empirical issues associated with the operation of fiscal stabilizers within an economy. It argues that such stabilizers operate most effectively at a national, rather than local, level. As differing cycles across regions tend to offset each other for the country as a whole, national fiscal stabilizers are not associated with the same increase in future tax liabilities for the region as local ones. Accordingly, the negative impact from the Ricardian effects associated with these tax liabilities is smaller. Empirical work on data across Canadian provinces indicates that local stabilizers are only one-third to one-half as effective as national stabilizers which create no future tax liability.

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Bibliographic Reference

Bayoumi, T and Masson, P. 1998. 'Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization and EMU'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1984