Liberating Supply-Fiscal Policy and Technological innovation in a Multicountry Model

IMF Working Papers, June 1, 1998

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Liberating Supply-Fiscal Policy and Technological innovation in a Multicountry Model

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Bibliographic details

• Authors: Douglas Laxton, Tamim Bayoumi, David T. Coe
• Published: June 1, 1998
• Series: IMF Working Papers

Overview

• Examines how endogenizing technological progress in a multicountry macroeconometric model affects the analysis of fiscal policies.
• Uses an expanded version of the IMF’s multicountry model, MULTIMOD, with total factor productivity (TFP) endogenized as a function of domestic research and development (R&D) expenditures, R&D expenditures of trading partners, and trade.
• Concludes that, compared with the standard version of the model with exogenous TFP, fiscal policies have much larger and long-lived effects on the domestic economy and on other countries.

Model specification and methodology

• Model: Expanded MULTIMOD (IMF’s multicountry model).
• TFP specification: Endogenized as a function of
  • domestic R&D expenditures,
  • R&D expenditures of trading partners,
  • trade.
• Comparison: Endogenous-TFP version versus standard exogenous-TFP version to evaluate fiscal policy effects.

Key findings

• Fiscal policy effects:
  • Fiscal policies have much larger effects in the model with endogenous TFP compared with the model with exogenous TFP.
  • These effects are long-lived domestically.
  • Spillovers: Fiscal policies produce larger effects on other countries when TFP is endogenized.
• Mechanism:
  • R&D expenditures (domestic and foreign) and trade amplify and propagate fiscal impacts through their influence on TFP.

Policy implications and recommendations

• Accounting for technological progress:
  • Fiscal policy analysis should incorporate endogenous TFP to capture larger and more persistent effects.
• International considerations:
  • Policymakers should recognize cross-border transmission of fiscal policy via R&D and trade channels, implying coordination or awareness of spillovers.
• R&D and trade as amplifiers:
  • Policies that influence R&D expenditures or trade can have magnified effects on growth through TFP dynamics and thus on the effectiveness of fiscal policy.

Subjects and keywords highlighted in the paper

• Subjects: Expenditure, Fiscal policy, National accounts, Private consumption, Production, Public debt, Total factor productivity
• Keywords: country TFP, Econometric Models, endogenizing TFP, exogenous TFP, Global, net present value, Private consumption, R&D, R&D expenditure, Technological Progress, Total factor productivity, total factor productivity equation, WP

Publication metadata (from source)

• Pages: 26
• Volume: 1998
• Issue: 095
• Series: Working Paper No. 1998/095
• Stock No: WPIEA0951998
• ISBN: 9781451851793
• ISSN: 1018-5941
• Authors: Douglas Laxton, Tamim Bayoumi, David T. Coe
• Date: June 1, 1998

Source: IMF Working Paper "Liberating Supply-Fiscal Policy and Technological innovation in a Multicountry Model" (Working Paper No. 1998/095).

Content in this bundle

• Liberating Supply: Fiscal Policy and Technological Innovation in a Multicountry Model - WP/98/95
  • Liberating Supply: Fiscal Policy and Technological Innovation in a Multicountry Model - WP/98/95 (Markdown version)
  • Liberating Supply: Fiscal Policy and Technological Innovation in a Multicountry Model - WP/98/95 (PDF)