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Effects of Fiscal Policy: A Comprehensive Survey

This survey explores the theoretical and empirical research on discretionary fiscal policy, discussing the size and future costs of its effects, identification lags, and the role of automatic stabilizers. It also considers the link between public debt and primary deficits, the politics of discretionary fiscal policy, and the possibilities for monetary/fiscal policy coordination.

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Effects of Fiscal Policy: A Comprehensive Survey

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  1. Discussion of Roel Beetsma, “A survey of the effects of discretionary fiscal policy” Lars E.O. Svensson Sveriges Riksbank January 29, 2008

  2. Summary • Good survey of theoretical and empirical research on discretionary fiscal policy • Many papers • G, T  Y, C

  3. Summary: Problems • Size of effects? • Future costs of increased debt? • Lags in identification, decision, and implementation • Preliminary data, uncertainty: Errors in identification • Small open economy: Less effect

  4. Summary: Conclusions • Better to rely on automatic stabilizers • But effects of automatic stabilizers depends on source and persistence of shocks • Introduce link between public debt level and cyclically adjusted primary deficit

  5. Include, more of? • Politics of discretionary fiscal policy • Timely, targeted, temporary (how likely?) • Not just discretionary policy in survey • Effects of automatic stabilizers • Effective/optimal stabilizers? • Independent fiscal-policy council (soft, hard)? • Monetary/fiscal policy coordination?

  6. Monetary/fiscal policy coordination? • Modern monetary policy: Mandate, independence, accountability • Transparency, medium-term orientation of both fiscal and monetary policy • Simplifies implicit coordination (Nash, Stackelberg, …) • Explicit coordination only in extreme situations: Wars, disasters, deflation, …

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