We study the dynamic output and welfare effects of public infrastructure investment under a balanced budget fiscal rule, using an overlapping generations model of a small open economy. The government finances public investment by employing distortionary labor taxes. We find a negative short-run...

The paper studies the dynamic output effects of public infrastructure investment in a small open economy. We develop an overlapping generations model that includes a production externality of public capital and a wealth effect on labor supply. Public capital enters the firm's production function...

The goal of this paper is to examine the dynamic effects of fiscal instruments in Lithuania on the economy and welfare. In the analysis, a calibrated dynamic stochastic general equilibrium model for Lithuania is employed. The calculation implies that 9-16 percent of tax cuts are self-financing...

In this paper, the economic impact of the 2006–2008 personal income tax (PIT) reform in Lithuania is analyzed applying model-based simulations. We find that the undertaken PIT reform is unsustainable as it leads to permanent government budget deficits and ever increasing public debt. This...

Macroeconomic performance in the Economic and Monetary Union (EMU) will be impaired if macroeconomic shocks are largely asymmetric, fiscal policy flexibility is limited, goods markets adjust sluggishly, labour mobility is low and automatic stabilization from federal taxes and government spending...

We investigate the effects of fiscal policy surprises for US data, using vector autoregressions.We overcome the difficulties that changes in fiscal policy may manifest themselves in variables other than fiscal variables first and that fiscal variables may respond 'automatically' to business...

The new generation of dynamic stochastic general equilibrium (DSGE) models seems particularly suited for conducting scenario analysis. These models formalise the behaviour of economic agents on the basis of explicit micro-foundations. As a result, they appear less prone to the Lucas critique...

We provide a test of the sustainability of the Spanish government deficit over the period 1850-2000, from the estimation of a cointegration relationship between government expenditures and revenues derived from the intertemporal budget constraint. The longer than usual span of the data allows us...