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Macroeconomic impacts of fiscal policy shocks in the UK: A DSGE analysis

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posted on 03.07.2018 by Keshab Bhattarai, Dawid Trzeciakiewicz
This paper develops and estimates a new-Keynesian dynamic stochastic general equilibrium (DSGE) model for the analysis of fiscal policy in the UK. We find that government consumption and investment yield the highest GDP multipliers in the short-run, whereas capital income tax and public investment have dominating effect on GDP in the long-run. When nominal interest rate is at the zero lower bound, consumption taxes and public consumption and investment are found to be the most effective fiscal instruments throughout the analysed horizon, and capital and labour income taxes are established to be the least effective. The paper also shows that the effectiveness of fiscal policy decreases in a small open-economy scenario and that nominal rigidities improve effectiveness of public spending and consumption taxes, whereas decrease that of income taxes.

History

School

  • Business and Economics

Department

  • Economics

Published in

Economic Modelling

Volume

61

Pages

321 - 338

Citation

BHATTARAI, K. and TRZECIAKIEWICZ, D., 2016. Macroeconomic impacts of fiscal policy shocks in the UK: A DSGE analysis. Economic Modelling, 61, pp.321-338.

Publisher

© Elsevier

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Publication date

2016

Notes

This paper was published in the journal Economic Modelling and the definitive published version is available at https://doi.org/10.1016/j.econmod.2016.10.012.

ISSN

0264-9993

Language

en

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