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...

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Main Author:	Belinga, Vincent
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2016
Subjects:	FORECASTS MONETARY POLICY DURABLE GOODS OIL PRICE FREE TRADE AGREEMENT MULTIPLIERS LAGS SUPPLY CURVE INCOME INTEREST EXPECTATIONS BUSINESS INVESTMENT REAL EXCHANGE RATES GOVERNMENT SPENDING INFORMATION FLOWS INTEREST RATE EXCHANGE REAL GDP SPENDING ECONOMIC DEVELOPMENTS PERPETUITY SERVICES EXPORTS REVENUES FISCAL POLICY TAX CHANGES VARIABLES PRICE TAX INCOME TAX RESERVE FREE TRADE CORPORATE INCOME TAX INTERNATIONAL BANK ECONOMIC OUTLOOK BUDGET TAX CUTS PUBLIC POLICY TRADE BALANCE OIL PRICES GLOBAL ECONOMY ADVANCED ECONOMIES GROSS DEBT RESERVE BANK EXOGENOUS VARIABLES CORPORATE INCOME TAXES EXCHANGE RATES TRADING BASE YEAR ECONOMETRICS RECURRENT EXPENDITURES GLOBALIZATION DEBT NET EXPORTS PRIVATE INVESTMENT RETURN BUSINESS CYCLE OPEN ECONOMY INTERNATIONAL ECONOMICS LABOR TAX REVENUES INVENTORIES MONETARY AUTHORITIES CORPORATE TAX PUBLIC INVESTMENT TAXES EXPENDITURE UNEMPLOYMENT INCOME TAXES CONSUMPTION FEDERAL RESERVE AGGREGATE SUPPLY FEDERAL RESERVE BANK VOLATILITY CAPITAL MOBILITY UNEMPLOYMENT RATE FUTURE VALUE COMPETITIVENESS TAX INCREASES FEDERAL BUDGET MACROECONOMICS NATIONAL INCOME AGGREGATE DEMAND EXPENDITURES ECONOMY
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

id	okr-10986-24229
recordtype	oai_dc
spelling	okr-10986-242292021-04-23T14:04:20Z Effects of Fiscal Policy Shocks in an Open Economy : Evidence from Canada Belinga, Vincent FORECASTS MONETARY POLICY DURABLE GOODS OIL PRICE FREE TRADE AGREEMENT MULTIPLIERS LAGS SUPPLY CURVE INCOME INTEREST EXPECTATIONS BUSINESS INVESTMENT REAL EXCHANGE RATES GOVERNMENT SPENDING INFORMATION FLOWS INTEREST RATE EXCHANGE REAL GDP SPENDING ECONOMIC DEVELOPMENTS PERPETUITY SERVICES EXPORTS REVENUES FISCAL POLICY TAX CHANGES VARIABLES PRICE TAX INCOME TAX RESERVE FREE TRADE CORPORATE INCOME TAX INTERNATIONAL BANK ECONOMIC OUTLOOK BUDGET TAX CUTS PUBLIC POLICY TRADE BALANCE OIL PRICES GLOBAL ECONOMY ADVANCED ECONOMIES GROSS DEBT RESERVE BANK EXOGENOUS VARIABLES CORPORATE INCOME TAXES EXCHANGE RATES TRADING BASE YEAR ECONOMETRICS RECURRENT EXPENDITURES GLOBALIZATION DEBT NET EXPORTS PRIVATE INVESTMENT RETURN BUSINESS CYCLE OPEN ECONOMY INTERNATIONAL ECONOMICS LABOR TAX REVENUES INVENTORIES MONETARY AUTHORITIES CORPORATE TAX PUBLIC INVESTMENT TAXES EXPENDITURE UNEMPLOYMENT INCOME TAXES CONSUMPTION FEDERAL RESERVE AGGREGATE SUPPLY FEDERAL RESERVE BANK VOLATILITY CAPITAL MOBILITY UNEMPLOYMENT RATE FUTURE VALUE COMPETITIVENESS TAX INCREASES FEDERAL BUDGET MACROECONOMICS NATIONAL INCOME AGGREGATE DEMAND EXPENDITURES ECONOMY 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. 2016-05-04T21:11:52Z 2016-05-04T21:11:52Z 2016-04 Working Paper http://documents.worldbank.org/curated/en/2016/04/26285651/effects-fiscal-policy-shocks-open-economy-evidence-canada http://hdl.handle.net/10986/24229 English en_US Policy Research Working Paper;No. 7654 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Canada
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	FORECASTS MONETARY POLICY DURABLE GOODS OIL PRICE FREE TRADE AGREEMENT MULTIPLIERS LAGS SUPPLY CURVE INCOME INTEREST EXPECTATIONS BUSINESS INVESTMENT REAL EXCHANGE RATES GOVERNMENT SPENDING INFORMATION FLOWS INTEREST RATE EXCHANGE REAL GDP SPENDING ECONOMIC DEVELOPMENTS PERPETUITY SERVICES EXPORTS REVENUES FISCAL POLICY TAX CHANGES VARIABLES PRICE TAX INCOME TAX RESERVE FREE TRADE CORPORATE INCOME TAX INTERNATIONAL BANK ECONOMIC OUTLOOK BUDGET TAX CUTS PUBLIC POLICY TRADE BALANCE OIL PRICES GLOBAL ECONOMY ADVANCED ECONOMIES GROSS DEBT RESERVE BANK EXOGENOUS VARIABLES CORPORATE INCOME TAXES EXCHANGE RATES TRADING BASE YEAR ECONOMETRICS RECURRENT EXPENDITURES GLOBALIZATION DEBT NET EXPORTS PRIVATE INVESTMENT RETURN BUSINESS CYCLE OPEN ECONOMY INTERNATIONAL ECONOMICS LABOR TAX REVENUES INVENTORIES MONETARY AUTHORITIES CORPORATE TAX PUBLIC INVESTMENT TAXES EXPENDITURE UNEMPLOYMENT INCOME TAXES CONSUMPTION FEDERAL RESERVE AGGREGATE SUPPLY FEDERAL RESERVE BANK VOLATILITY CAPITAL MOBILITY UNEMPLOYMENT RATE FUTURE VALUE COMPETITIVENESS TAX INCREASES FEDERAL BUDGET MACROECONOMICS NATIONAL INCOME AGGREGATE DEMAND EXPENDITURES ECONOMY
spellingShingle	FORECASTS MONETARY POLICY DURABLE GOODS OIL PRICE FREE TRADE AGREEMENT MULTIPLIERS LAGS SUPPLY CURVE INCOME INTEREST EXPECTATIONS BUSINESS INVESTMENT REAL EXCHANGE RATES GOVERNMENT SPENDING INFORMATION FLOWS INTEREST RATE EXCHANGE REAL GDP SPENDING ECONOMIC DEVELOPMENTS PERPETUITY SERVICES EXPORTS REVENUES FISCAL POLICY TAX CHANGES VARIABLES PRICE TAX INCOME TAX RESERVE FREE TRADE CORPORATE INCOME TAX INTERNATIONAL BANK ECONOMIC OUTLOOK BUDGET TAX CUTS PUBLIC POLICY TRADE BALANCE OIL PRICES GLOBAL ECONOMY ADVANCED ECONOMIES GROSS DEBT RESERVE BANK EXOGENOUS VARIABLES CORPORATE INCOME TAXES EXCHANGE RATES TRADING BASE YEAR ECONOMETRICS RECURRENT EXPENDITURES GLOBALIZATION DEBT NET EXPORTS PRIVATE INVESTMENT RETURN BUSINESS CYCLE OPEN ECONOMY INTERNATIONAL ECONOMICS LABOR TAX REVENUES INVENTORIES MONETARY AUTHORITIES CORPORATE TAX PUBLIC INVESTMENT TAXES EXPENDITURE UNEMPLOYMENT INCOME TAXES CONSUMPTION FEDERAL RESERVE AGGREGATE SUPPLY FEDERAL RESERVE BANK VOLATILITY CAPITAL MOBILITY UNEMPLOYMENT RATE FUTURE VALUE COMPETITIVENESS TAX INCREASES FEDERAL BUDGET MACROECONOMICS NATIONAL INCOME AGGREGATE DEMAND EXPENDITURES ECONOMY Belinga, Vincent Effects of Fiscal Policy Shocks in an Open Economy : Evidence from Canada
geographic_facet	Canada
relation	Policy Research Working Paper;No. 7654
description	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.
format	Working Paper
author	Belinga, Vincent
author_facet	Belinga, Vincent
author_sort	Belinga, Vincent
title	Effects of Fiscal Policy Shocks in an Open Economy : Evidence from Canada
title_short	Effects of Fiscal Policy Shocks in an Open Economy : Evidence from Canada
title_full	Effects of Fiscal Policy Shocks in an Open Economy : Evidence from Canada
title_fullStr	Effects of Fiscal Policy Shocks in an Open Economy : Evidence from Canada
title_full_unstemmed	Effects of Fiscal Policy Shocks in an Open Economy : Evidence from Canada
title_sort	effects of fiscal policy shocks in an open economy : evidence from canada
publisher	World Bank, Washington, DC
publishDate	2016
url	http://documents.worldbank.org/curated/en/2016/04/26285651/effects-fiscal-policy-shocks-open-economy-evidence-canada http://hdl.handle.net/10986/24229
_version_	1764455989361246208

Effects of Fiscal Policy Shocks in an Open Economy : Evidence from Canada

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