Year: 2005
Author: Plötscher, Michael, Seidel, Tobias, Westermann, Frank
Credit and Capital Markets – Kredit und Kapital, Vol. 38 (2005), Iss. 1 : pp. 23–51
Abstract
In this article we show that the empirically measured multiplier effect of fiscal policy is significant for Germany in statistical terms, although it is only small in size. For example, a one-euro government spending increase results in a positive effect on the Gross Domestic Product of 1.37 euro in the first year, whilst a tax increase generates a negative effect of -0.62 euro. In the medium term, the positive effect of increased government spending will tend towards zero, whereas the negative effect of the tax increase will gain in strength falling to -1.63 euro. We show that these comparably minor effects must be attributed mainly to interactions among policy instruments. Counterfinancing and quickly repealed policy measures substantially contribute to the small multiplier effect. We demonstrate by means of a counterfactual analysis that the Keynesian multiplier effect of government spending is 2.44, whilst the multiplier effect of tax revenues stands at -1.78 when leaving these politico-economic response patterns aside. This analysis is based on a structural VAR (vector autoregressive) model. As a topical example, we have examined the cyclical effects of the December 2003 tax reform on the Gross Domestic Products of the subsequent years.
Journal Article Details
Publisher Name: Global Science Press
Language: Multiple languages
DOI: https://doi.org/10.3790/ccm.38.1.23
Credit and Capital Markets – Kredit und Kapital, Vol. 38 (2005), Iss. 1 : pp. 23–51
Published online: 2005-01
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 29