Abstract
We assess the effect of fiscal episodes, as determined via alternative approaches, on GDP and on markups in a panel of 14 OECD countries. Our results with narrative action-based data show counter-cyclicality since negative fiscal shocks increase markups. Additional empirical exercises reveal that spending-based consolidation programs have a more counter-cyclical effect on the behaviour of markups over the short and medium term than tax-based ones. Moreover, in times of economic contraction the degree of counter-cyclicality of negative (positive) government spending (tax) shocks is larger than during economic expansions.
Original language | English |
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Pages (from-to) | 233-250 |
Number of pages | 18 |
Journal | Open Economies Review |
Volume | 28 |
Issue number | 2 |
DOIs | |
Publication status | Published - Apr 2017 |
Keywords
- Business cycle
- Fiscal consolidation
- GMM
- Imperfect competition
- Impulse response functions
- Local projection