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

Author/Editor:

Paul R Masson ; Tamim Bayoumi

Publication Date:

August 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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 1/3 to ½ as effective as national stabilizers that create no future tax liability.

Series:

Working Paper No. 98/112

Subject:

English

Publication Date:

August 1, 1998

ISBN/ISSN:

9781451853575/1018-5941

Stock No:

WPIEA1121998

Format:

Paper

Pages:

29

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