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Macroeconomic impacts of fiscal policy shocks in the UK: A DSGE analysis

Bhattarai, K.
Trzeciakiewicz, Dawid
Publication Date
2017-02
End of Embargo
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Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Peer-Reviewed
Yes
Open Access status
openAccess
Accepted for publication
27/10/2016
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Abstract
This paper develops and estimates a new-Keynesian dynamic stochastic general equilibrium (DSGE) model for the analysis of fiscal policy in the UK. We find that government consumption and investment yield the highest GDP multipliers in the short-run, whereas capital income tax and public investment have dominating effect on GDP in the long-run. When nominal interest rate is at the zero lower bound, consumption taxes and public consumption and investment are found to be the most effective fiscal instruments throughout the analysed horizon, and capital and labour income taxes are established to be the least effective. The paper also shows that the effectiveness of fiscal policy decreases in a small open-economy scenario and that nominal rigidities improve effectiveness of public spending and consumption taxes, whereas decrease that of income taxes.
Version
Accepted manuscript
Citation
Bhattarai K and Trzeciakiewicz D (2017) Macroeconomic impacts of fiscal policy shocks in the UK: A DSGE analysis. Economic Modelling. 61: 321-338.
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Article
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