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

_IMF Working Papers, August 1, 1998_

## Source details

**Canonical URL:** [Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization, and EMU](https://www.imf.org/en/publications/wp/issues/2016/12/30/liability-creating-versus-non-liability-creating-fiscal-stabilization-policies-ricardian-2681)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/liability-creating-versus-non-liability-creating-fiscal-stabilization-policies-ricardian-2681/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/30/liability-creating-versus-non-liability-creating-fiscal-stabilization-policies-ricardian-2681/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/30/liability-creating-versus-non-liability-creating-fiscal-stabilization-policies-ricardian-2681/bundle-manifest.json)

## Bibliographic details
- Authors: Paul R Masson, Tamim Bayoumi
- Published: August 1, 1998
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451853575.001

---

### Summary — main findings
- The paper examines theoretical and empirical issues associated with the operation of fiscal stabilizers within an economy.
- Fiscal stabilizers operate most effectively at a national, rather than local, level.
- Differing cycles across regions tend to offset each other for the country as a whole, so 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 for national stabilizers.
- Empirical analysis using 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.

### Subjects and keywords
- Subjects: Consumption, Fiscal policy, Fiscal stabilization, Government consumption, Income, National accounts, Personal income
- Keywords: beginning-of-period government debt, Consumption, deficit variable, Europe, Fiscal Stabilization, Government consumption, Income, Keynesian deficit finance, Levels of Government, liability-creating deficit, Personal income, Ricardian Equivalence, tax liability, WP

### Policy implications and interpretation
- National-level fiscal stabilizers can provide more effective stabilization because regional cycle offsets reduce the implied increase in future regional tax liabilities.
- Policies that create no future tax liability at the national level produce smaller Ricardian negative effects compared with local liability-creating policies.
- For federations or monetary unions (e.g., EMU contexts), reliance on national or central fiscal stabilization mechanisms may yield stronger stabilizing outcomes than decentralized, liability-creating local fiscal responses.

*Source: IMF Working Paper — "Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization, and EMU", Paul R Masson and Tamim Bayoumi, August 1, 1998.*

---

## Content in this bundle

- **_wp98112**
  - [_wp98112 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/_wp98112.pdf.md){rel="alternate" type="text/markdown"}
  - [_wp98112 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/_wp98112.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/liability-creating-versus-non-liability-creating-fiscal-stabilization-policies-ricardian-2681_