Citation

Discussion Paper Details

Please find the details for DP5839 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Mr Ricardo's Great Adventure: Estimating Fiscal Multipliers in a Truly Intertemporal Model

Author(s): Tamim Bayoumi and Silvia Sgherri

Publication Date: September 2006

Keyword(s): discount rates, fiscal multipliers, fiscal policy and Ricardian equivalence

Programme Area(s): International Macroeconomics

Abstract: We estimate tax multipliers in a "Blanchard-Yaari" consumption model where Ricardian equivalence is broken because the private sector discounts the future at a faster rate than the real rate of interest. The model fits U.S. data since 1955 extremely well-entailing a discount wedge of around 20 percent a year and fiscal multipliers of 0.15-0.4-depending on the permanence of the change in taxes/transfers, and is much superior to one that assumes some consumers are fully Ricardian and others follow simple rules of thumb. The implied high private sector rate of discount has wide implications for policymakers.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5839

Bibliographic Reference

Bayoumi, T and Sgherri, S. 2006. 'Mr Ricardo's Great Adventure: Estimating Fiscal Multipliers in a Truly Intertemporal Model'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5839