How Potent is Fiscal Policy in Australia?
Article first published online: 19 AUG 2011
© 2011 The Economic Society of Australia
Economic Papers: A journal of applied economics and policy
Volume 30, Issue 3, pages 377–385, September 2011
How to Cite
Makin, A. J. and Narayan, P. K. (2011), How Potent is Fiscal Policy in Australia?. Economic Papers: A journal of applied economics and policy, 30: 377–385. doi: 10.1111/j.1759-3441.2011.00120.x
- Issue published online: 19 AUG 2011
- Article first published online: 19 AUG 2011
- fiscal policy;
- offset coefficient;
- private saving;
- public saving
This article examines the efficacy of fiscal policy in Australia, focusing on the relationship between changes in the economy’s consolidated fiscal imbalance and private sector saving over recent decades. We first examine the macroeconomic significance of the offset coefficient between public and private savings, whose size effectively determines the effectiveness of fiscal activism. The approach innovatively suggests that these estimates simultaneously reflect Ricardian and other non-Keynesian explanations of private consumption, such as the lifecycle and permanent income theories. Econometric estimation of the offset coefficient for Australia over the period 1980–2008 yields values between 0.75 and near unity, which imply a small or near-zero fiscal multiplier, and that running budget surpluses to lift national saving is ineffective.