THE RELATIONSHIP BETWEEN LARGE FISCAL ADJUSTMENTS AND SHORT-TERM OUTPUT GROWTH UNDER ALTERNATIVE FISCAL POLICY REGIMES

A small but growing body of literature searches for evidence of non-Keynesian effects of fiscal contractions. That is, some evidence exists that large fiscal contractions stimulate short-run economic activity. This article continues that research effort by systematically examining the effects (if any) of unusual fiscal events-either non-Keynesian results within a Keynesian model or Keynesian results within a neoclassical model-on short-run economic activity. The authors examine this issue within three separate models-a St. Louis equation, a Hall-type consumption equation, and a growth accounting equation. The empirical findings do not provide strong systematic support for the view that unusually large fiscal contractions/expansions reverse the effects of normal fiscal events. Moreover, the authors find only limited evidence that trigger points are empirically important. Copyright 2003 Western Economic Association International.