The sectoral reallocation of government purchases as budgetary-neutral stabilisation tool : a model-based analysis

Title data

Hohberger, Stefan ; Vogel, Lukas ; Herz, Bernhard:
The sectoral reallocation of government purchases as budgetary-neutral stabilisation tool : a model-based analysis.
In: International Economics and Economic Policy. Vol. 12 (2015) Issue 1 . - pp. 59-74.
ISSN 1612-4812
DOI: https://doi.org/10.1007/s10368-014-0280-0

Official URL:

Abstract in another language

The paper uses a two-sector DSGE model with nominal and real rigidities to analyse the stabilising properties of fiscal policy rules in a small open economy in monetary union. The focus is on the potential of budgetary-neutral rules that adjust the composition of government purchases between tradable and non-tradable goods in response to business cycle indicators as a stabilisation tool when fiscal limits are tight. The paper finds that the state-dependent reallocation of government purchases between tradable and non-tradable goods stabilises domestic activity and reduces the welfare costs of economy-wide and sector-specific shocks. Potential welfare gains from such policy rules are higher than welfare gains from standard counter-cyclical fiscal policy rules that adjust the overall level of government purchases. Contrary to standard deficit spending policies, the state-dependent expenditure composition rules avoid the trade- off between, first, counter-cyclical spending and, second, consolidation needs in economic downturns in the presence of explicit or implicit deficit and debt limits.

Further data

Item Type:	Article in a journal
Refereed:	Yes
Institutions of the University:	Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I - International Economics and Finance > Chair Economics I - International Economics and Finance - Univ.-Prof. Dr. Bernhard Herz Faculties Faculties > Faculty of Law, Business and Economics Faculties > Faculty of Law, Business and Economics > Department of Economics Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I - International Economics and Finance
Result of work at the UBT:	Yes
DDC Subjects:	300 Social sciences > 330 Economics
Date Deposited:	31 Mar 2015 07:02
Last Modified:	31 Mar 2015 07:02
URI:	https://eref.uni-bayreuth.de/id/eprint/9514