Effects of Fiscal Policy Shocks in an Open Economy : Evidence from Canada
What is the impact of fiscal policy shocks on key macroeconomic variables in Canada? This question triggered renewed interest in the aftermath of the 2008-09 Great Recession. Indeed, as in many advanced economies, fiscal policy in Canada following...
| Main Author: | |
|---|---|
| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/04/26285651/effects-fiscal-policy-shocks-open-economy-evidence-canada http://hdl.handle.net/10986/24229 |
| Summary: | What is the impact of fiscal policy
shocks on key macroeconomic variables in Canada? This
question triggered renewed interest in the aftermath of the
2008-09 Great Recession. Indeed, as in many advanced
economies, fiscal policy in Canada following the recession
started with an expansionary phase to boost domestic demand.
It progressed to an adjustment phase to reduce public debt
and ensure long-term fiscal sustainability and sustained
growth. This paper analyzes the effects of fiscal policy
shocks on the Canadian economy, building on the
sign-restrictions-VAR approach. Unlike previous studies,
this paper explicitly accounts for spillovers from the U.S.,
Canada's main trading partner, and for oil price
fluctuations. The findings show that the size and sign of
the spending and tax revenue multipliers depend on whether
the analysis controls for the exogenous factors. The tax-cut
multiplier varies between 0.2 and 0.5, while the spending
multiplier ranges between 0.2 and 1.1; the spending
multiplier tends to be larger than the tax-cut multiplier
over the past two decades. |
|---|