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

_IMF Working Papers, June 1, 1998_

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## Bibliographic details
- Authors: Douglas Laxton, Tamim Bayoumi, David T. Coe
- Published: June 1, 1998
- Series: IMF Working Papers

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### 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).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/liberating-supply-fiscal-policy-and-technological-innovation-in-a-multicountry-model-2661_