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...

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...

This paper examines how the member countries of a monetary union react to country-specific shocks and to shocks from the rest of the world, when the budget deficit is the only policy instrument available. We develop a three-country model in which countries show different preferences regarding...