Effects of fiscal policy: measurement issues and structural change

Doutoramento em EconomiaConsiderable uncertainty surrounds the macroeconomic effects of fiscal policy. The re-search presented in this dissertation firstly aims at improving on the methods used to measure such effects - which feature vector autoregressions (VARs) as the basic tool. The investigation is partly carried out using structural VARs. The methodological innova¬tions in that part concern the joint identification of fiscal shocks vis-a-vis monetary policy shocks and the estimation of a model with time-varying parameters using a non-recursive identification scheme. I also use reduced-form VARs to assess the effects of a novel shock measure, derived from budget forecasts, that is arguably free of anticipatory movements. The second aim of the dissertation is to present empirical results for the US, focusing on the way the impacts of the government budget on the economy have changed over time. The thesis is divided into three essays. In the first one, I present evidence that taxes and transfers were the most important force attenuating the severity of recessions up to the eighties, surpassing the role of monetary policy. Fiscal policy has, however, become less effective in stimulating output in the course of the last decades. The findings in the second and the third essays corroborate this conclusion. Such a change in effectiveness is particularly marked for the shock measure that is relatively unaffected by anticipation, which features multipliers with non-conventional signs in the recent period. In general, these findings call for more research on the factors that intervene in the transmission mechanism of fiscal policy and can bring about important variation in its impacts