Abstract
This paper examines the effects of fiscal policy, measured by changes in government spending and net tax (government tax revenue less transfer payments), on New Zealand GDP. The framework of analysis is a structural vector autoregression (VAR) model of the New Zealand economy, employing and extending estimation techniques used by Blanchard and Perotti (2002). This model is then used to examine the dynamic effects of changes in government spending, taxes and transfers on GDP and the contributions of discretionary fiscal policy to New Zealand business cycles.
Highlights
This paper examines the effects of fiscal policy, as measured by government spending and net tax, on New Zealand gross domestic product (GDP)
One period where the two measures noticeably differ is in the mid-1990s, when the Philip Janssen measure suggests discretionary fiscal policy was subtracting from positive deviations in GDP from trend, whereas the fiscal vector autoregression (VAR) measure suggests fiscal policy was adding to positive deviations in GDP from trend
This paper has examined the dynamic effects of fiscal policy on New Zealand GDP using a structural VAR model
Summary
This paper examines the effects of fiscal policy, as measured by government spending and net tax, on New Zealand GDP. Blanchard and Perotti (2002) and Perotti (2004), who examine fiscal policy in the United States and a selection of OECD economies, use a structural VAR model to measure the dynamic impact of fiscal shocks to output. Their innovation is to use institutional information on the tax and transfer system to identify the effects of fiscal policy shocks on output.
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