Abstract
Based on a panel data model, Giavazzi, Jappelli and Pagano (2000, European Economic Review 44, 1259–1289) recently found evidence that national saving in OECD countries responds nonlinearly to fiscal policy, the nonlinearity being associated with the size and persistence of the fiscal impulse. The existence of this nonlinearity would have important policy implications because it implies that the short-run costs of a fiscal consolidation program are lower the larger and more persistent it is. However, this paper shows that their finding is not robust, one reason being the inadequacy of the slope homogeneity assumption implicit in their panel model and another reason being their reliance on an implausibly large number of episodes of large and persistent fiscal impulses.
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Acknowledgements
This paper was written while I was an Economist in the Business Cycles Department of the Kiel Institute for World Economics. I would like to thank three anonymous referees, my former colleagues at the Kiel Institute and seminar participants at the 2001 EEA and IIPF annual meetings as well as Jörg Döpke, M. Lee Greene and Roberto Perotti for helpful comments on an earlier version of this paper (Kamps 2001). This views expressed in this paper do not necessarily reflect those of the Kiel Institute or the European Central Bank.
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Kamps, C. Are the effects of fiscal policy really nonlinear? A note. Empirica 33, 113–125 (2006). https://doi.org/10.1007/s10663-006-9010-3
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DOI: https://doi.org/10.1007/s10663-006-9010-3