Recent international econometric analyses indicate that the impact of fiscal policy on output can vary during the economic cycle. In this paper, it is shown that a positive shock to government consumption will raise economic activity when the output gap is negative while the opposite holds when a positive output gap arises. Accordingly, the impact of fiscal policy at different stages of the economic cycle, should be borne in mind when formulating budgetary policy.
Research Area:Macroeconomics Date of Publication: October 8, 2014 Publisher: ESRI Place of Publication: Dublin
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