Automatic stabilizers, fiscal rules and macroeconomic stability

• Autores: Rafael Doménech Vilariño, Javier Andrés Domingo
• Localización: Documentos de trabajo - Banco de España, ISSN 0213-2710, Nº 14, 2003, págs. 1-26
• Idioma: inglés
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• Resumen

  • This paper analyzes the effect of the fiscal structure upon the trade-off between inflation and output stabilization in the presence of technological shocks in a DGE model with nominal and real rigidities. The model reproduces the main features of European economies and it integrates a rich menu of fiscal variables as well as a target on the debt to output ratio. The main result of this paper is that distortionary taxes tend to increase output volatility relative to lump-sum taxes unless substantial rigidities are present. We explore in detail the mechanisms that generate such a result, and the conditions under which the supply-side effects of distortionary taxes and the procyclical behaviour of public spending induced by fiscal rules prevail over the conventional effect of automatic stabilizers operating through disposable income