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The Timing and Persistence of Fiscal Policy Impacts on Growth: Evidence from OECD Countries

Authors


  •  Corresponding author: Norman Gemmell, Chief Economist, New Zealand Treasury, PO Box 3724, Wellington 6140, New Zealand. Email: norman.gemmell@treasury.govt.nz.

  • We are grateful to Bob Reed, Peren Arin and a referee of this Journal, for helpful comments on an earlier draft of this article, and to seminar participants at the Universities of Oxford (UK), Canterbury and Massey (New Zealand) and Oregon (US).

Abstract

The literatures testing for aggregate short-run or long-run growth impacts of fiscal policy use quite different methodologies. The former generally focuses on temporary fiscal ‘shocks’; the latter typically have no short-run dynamics or assume homogeneity. We use regression methods that treat heterogeneous short-run dynamics explicitly within a long-run model. Results suggest that previously estimated ‘long-run’ growth effects of fiscal policy are typically achieved quickly, consistent with results from short-run models. In principle these short-run effects ‘persist’; in practice regular fiscal policy changes in OECD countries mean that persistent increases or decreases in growth rates are rare.

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