期刊名称：Departmental Discussion Papers / University of Glasgow, Department of Economics
出版年度：2005
卷号：1
出版社：University of Glasgow, Department of Economics
摘要：Extending Gali and Monacelli (2004 ), we build an N-country open
economy model, where each economy is subject to sticky wages and prices and,
potentially, has access to sales and income taxes as well as government spending
as fiscal instruments. We examine an economy either as a small open economy
under flexible exchange rates or as a member of a monetary union. In a small
open economy when all three fiscal instruments are freely available, we show analytically
that the impact of technology and mark-up shocks can be completely
eliminated, whether policy acts with discretion or commitment. However, once
any one of these fiscal instruments is excluded as a stabilisation tool, costs can
emerge. Using simulations, we find that the useful fiscal instrument in this case
(in the sense of reducing the welfare costs of the shock) is either income taxes
or sales taxes. In contrast, having government spending as an instrument contributes
very little. In the case of mark-up shocks tax instruments which can
offset the impact of the shock directly are highly effective, while other fiscal
instruments are less useful.
The results for an individual member of a monetary union facing an idiosyncratic
technology shock (where monetary policy in the union does not respond)
are very different. First, even with all fiscal instruments freely available, the
technology shock will incur welfare costs. Government spending is potentially
useful as a stabilisation device, because it can act as a partial substitute for
monetary policy. Finally, sales taxes are more effective than income taxes at
reducing the costs of a technology shock under monetary union. If all three
taxes are available, they can reduce the impact of the technology shock on the
union member by around a half, compared to the case where fiscal policy is not
used.
Finally we consider the robustness of these results to two extensions. Firstly,
introducing government debt, such that policy makers take account of the debt
consequences of using fiscal instruments as stabilisation devices, and, secondly,
introducing implementation lags in the use of fiscal instruments. We find that
the need for debt sustainability has very limited impact on the use of fiscal
instruments for stabilisation purposes, while implementation lags can reduce,
but not eliminate, the gains from fiscal stabilisation.
∗We would like to thank Andrew Hughes-Hallett, Tatiana Kirsanova, Patrick
Minford, Charles Nolan, Alan Sutherland, David Vines, Mike Wickens and participants
at seminars at HM Treasury, St Andrews University and the MMF for
very helpful discussions in the process of drafting this paper. All errors remain
our own. We are also grateful to the ESRC, Grant No.RES-156-25-003, for financial
assistance. Address for correspondence: Campbell Leith, Department
of Economics, University of Glasgow, Adam Smith Building, Glasgow G12 8RT.
E-mail c.b.leith@socsci.gla.ac.uk.
