The paper presents a simple model for discussing the effects of deficit limits and budget rules on fiscal policy. I find that limits on deficit- output ratios provide incentives to implement procyclical policies when the economy is in intermediate states, and countercyclical policies only in...

We investigate the dynamic effects of five different fiscal shocks on the US economy using a structural vector autoregressive (SVAR) model that uses Blanchard-Quah type restrictions. We find that an increase in indirect taxes or in corporate taxes has a contractionary effect on the economy,...

This paper provides some further tests for the proposition that a larger public sector leads to smaller output volatility. Both Gali and Fatas & Mihov have provided some evidence which appears to support this proposition. Their evidence is, however, based on a relatively small sample of...

This paper examines the adequacy and the consistency of the fiscal rule set by the Treaty of Maastricht and the Stability and Growth Pact. First, it shows that the functional fiscal rule is adequate in ensuring the final goal of public debt sustainability. Second, it points out that the draw of...

The Broad Economic Policy Guidelines contain the answers of the European Commission and the governments of the EU-member countries to the European growth and employment problems. These guidelines have been the major EU-economic policy concept for around ten years now. They can be seen as a...

One of the most often discussed features of the Stability and Growth Pact is the rigidity of its 3% deficit rule. In the recent time several reform proposals aim at alleviating the rule in order to allow more room for the automatic stabilizers to operate. As the 3% limit became in the recent...

This paper studies the Ramsey problem of optimal labor income taxation in a simple model economy which deviates from a first best representative agent economy in three important aspects, namely, flat rate second best tax, monopoly power in intermediate product market, and monopolistic wage...

The recent general trend of cutting top marginal income tax rates in industrialized economies and the policy concern of enhancing competition in the US and the EU product markets subtly motivate the question if low income tax rates are optimal in an economy with imperfectly competitive markets....

Using an optimisation-based model with endogenous labour supply and a proportional tax rate, we compare the stabilising properties of different fiscal policy rules. The economy is affected by shocks from both government spending and technology. The fiscal policy rule can be based on government...

This paper assesses the contribution of the European Central Bank (ECB) to Germany’s ongoing economic crisis, a vicious circle of decline in which the country has become stuck since the early 1990s. It is argued that the ECB continues the Bundesbank tradition of asymmetric policymaking: the...