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Essays on Fiscal Policy, Private Consumption and Non-Stationary Panel Data

Jönsson, Kristian LU (2005) In Lund Economic Studies
Abstract (Swedish)
Popular Abstract in Swedish

Den kanske viktigaste anledningen till att söka en grundläggande förståelse av ekonomiskt beteende är att erhålla ett underlag för utformningen och genomförandet av ekonomisk politik. Utan en sådan förståelse minskas möjligheterna att uppnå målen för den ekonomiska politiken. Detta gäller i synnerhet den ekonomiska politik som bedrivs genom finanspolitik.



En av finanspolitikens viktigaste roller är att befrämja en hög och stabil ekonomisk tillväxt. Genom olika stabiliseringspolitiska åtgärder försöker beslutsfattare att nå de uppsatta målen för den kortsiktiga ekonomiska utvecklingen samtidigt som långsiktiga hänsynstaganden beaktas. Ibland uppstår emellertid direkta... (More)
Popular Abstract in Swedish

Den kanske viktigaste anledningen till att söka en grundläggande förståelse av ekonomiskt beteende är att erhålla ett underlag för utformningen och genomförandet av ekonomisk politik. Utan en sådan förståelse minskas möjligheterna att uppnå målen för den ekonomiska politiken. Detta gäller i synnerhet den ekonomiska politik som bedrivs genom finanspolitik.



En av finanspolitikens viktigaste roller är att befrämja en hög och stabil ekonomisk tillväxt. Genom olika stabiliseringspolitiska åtgärder försöker beslutsfattare att nå de uppsatta målen för den kortsiktiga ekonomiska utvecklingen samtidigt som långsiktiga hänsynstaganden beaktas. Ibland uppstår emellertid direkta motsättningar mellan de kortsiktiga stabiliseringspolitiska målen och de långsiktiga åtagandena. Detta gäller till exempel för finanspolitiken i Danmark, Irland och Tyskland under 1980-talet och början av 1990-talet. Under en längre period hade dessa länder ådragit sig avsevärda offentliga skulder som en följd av den stabiliseringspolitik som förts. Samtliga av dessa länder ställdes inför en situation där de långsiktiga åtagandena, i form av återbetalningar och räntebetalningar på statsskulden, kom i direkt konflikt med de stabiliseringspolitiska övervägandena. Genom att tvingas till att återskapa balans, och så småningom överskott, i den offentliga budgeten uppkom en oro för att åtstramningarna skulle medföra ekonomisk tillbakagång. Men farhågorna besannades inte. Istället för att föra in ekonomierna i en lågkonjunktur visade det sig att åtstramningarna hade expansiv effekt på vissa ekonomiska storheter, såsom privat konsumtion. Detta utfall medförde att många ekonomer och beslutsfattare började tvivla på om den gängse uppfattningen rörande finanspolitiska effekter verkligen stämde med verkligheten. Mycket forskning har sedan dess bedrivits på området.



Denna avhandling består av fem kapitel. I de första tre kapitlen undersöks vilken effekt finanspolitik har på privat konsumtion. Den avslutande två kapitlen studerar två ekonometriska metoder som kan användas bland annat för att undersöka hur finanspolitik ska utformas och vilken effekt finanspolitik har.



Resultaten från de första tre kapitlen indikerar att effekten av olika finanspolitiska åtgärder kan variera och att ett antal olika faktorer, såsom den finanspolitiska förändringens sammansättning och storlek, har inflytande på vilken effekt som gör sig gällande vid en viss tidpunkt.



I de avslutande två kapitlen undersöks hur paneldatatest för stationäritet och enhetsrötter påverkas av närvaro av korrelation mellan olika tvärsnittsenheter. Genom att utföra stokastiska simuleringar undersöks testens egenskaper när det gäller att testa ekonomiska hypoteser. I linje med tidigare resultat visar det sig att slutsatserna som dras från testen i hög grad påverkas av tvärsnittskorrelation. För att komma till rätta med problemen föreslår vi stationäritets- och enhetsrotstest som är robusta mot tvärsnittskorrelation. Vi illustrerar också de olyckliga effekter som felaktig hantering av tvärsnittskorrelation kan ha för slutsatser rörande ekonomiska hypoteser. (Less)
Abstract
In the first essay of this thesis, we examine whether the effects of fiscal expansions and contractions exert a symmetric influence on the relationship between fiscal policy and private consumption. Our results indicate a considerable asymmetry across fiscal expansions and contractions. More specifically, during fiscal contractions, transfers seem to influence private consumption in a neoclassical way, which indicates that contractions alter the expected permanence of transfer changes. The results imply that focus has to be directed towards situations where the effects of fiscal policy are not altered symmetrically across expansions and contractions.



In the second essay, we look at one possible explanation for the... (More)
In the first essay of this thesis, we examine whether the effects of fiscal expansions and contractions exert a symmetric influence on the relationship between fiscal policy and private consumption. Our results indicate a considerable asymmetry across fiscal expansions and contractions. More specifically, during fiscal contractions, transfers seem to influence private consumption in a neoclassical way, which indicates that contractions alter the expected permanence of transfer changes. The results imply that focus has to be directed towards situations where the effects of fiscal policy are not altered symmetrically across expansions and contractions.



In the second essay, we look at one possible explanation for the asymmetry found in the first essay. To specify an empirical model, we utilize a theoretical model that suggests that the effects of fiscal policy on private consumption depend on the level of government debt. If the theoretical model can be used to explain the asymmetries in fiscal policy effects, the effect of changes in transfers should vary with the level of government debt. Using a time-varying parameter model, to study if the Swedish experience is consistent with the prediction of the theoretical model, we find evidence indicating that government debt can be used to explain asymmetries in fiscal policy effects.



In the third essay, we investigate if government consumption, by acting either as a substitute for, or a complement to, private consumption, can help explain the non-Keynesian effects of fiscal policy that have occurred in Denmark, Germany, Ireland and Sweden. By using econometric methodologies, that both exogenously and endogenously recognize that government consumption can act as either a substitute for or a complement to private consumption, we find that the empirical evidence indicates that the complement/substitution dichotomy can help explain the non-Keynesian effects of fiscal policy that have been previously documented in Denmark, Ireland and Sweden.



In the fourth essay, we investigate the effects of cross-sectional correlation in a homogeneous panel data unit root test. We find that cross-sectional correlation causes size distortions, and investigate how well one existing remedy works. We find that the remedy is inappropriate in small samples, and suggest a small-sample homogeneous panel data unit root test that has good size properties in the presence of cross-sectional correlation. To illustrate the adverse effects of cross-sectional correlation in empirical applications of panel data unit root tests, we test the random walk hypothesis for private consumption.



In the fifth essay, we extend the scope of the analysis in the fourth chapter to include stationarity testing in panel data. We show that a panel data stationarity test is size-distorted when errors are cross-sectionally correlated, and suggest an orthogonalization procedure to eliminate the size distortions. By applying both the test that does not account for cross-sectional correlation, and the test suggested in the fifth essay, to test for output convergence, we show that inference from panel data stationarity tests can be adversely affected if cross-sectional correlation is not accounted for. (Less)
Please use this url to cite or link to this publication:
author
supervisor
opponent
  • Professor Ohlsson, Henry, Uppsala University
organization
publishing date
type
Thesis
publication status
published
subject
keywords
ekonomiska system, ekonomisk politik, economic systems, economic theory, econometrics, Economics, Cross-Sectional Dependence, Output Convergence, Unit Root, Stationarity, Panel Data, Government Consumption, Non-Keynesian Effects, Private Consumption, economic policy, Nationalekonomi, ekonometri, ekonomisk teori, Fiscal Policy
in
Lund Economic Studies
pages
135 pages
publisher
Department of Economics, Lund Universtiy
defense location
EC3:211, Holger Crafoords Ekonomicentrum, Lund
defense date
2005-03-17 10:15
ISSN
0460-0029
language
English
LU publication?
yes
id
2c853caa-fd4a-44e2-8b41-43ca585a05d0 (old id 544405)
date added to LUP
2007-10-13 12:26:22
date last changed
2016-09-19 08:44:53
@phdthesis{2c853caa-fd4a-44e2-8b41-43ca585a05d0,
  abstract     = {In the first essay of this thesis, we examine whether the effects of fiscal expansions and contractions exert a symmetric influence on the relationship between fiscal policy and private consumption. Our results indicate a considerable asymmetry across fiscal expansions and contractions. More specifically, during fiscal contractions, transfers seem to influence private consumption in a neoclassical way, which indicates that contractions alter the expected permanence of transfer changes. The results imply that focus has to be directed towards situations where the effects of fiscal policy are not altered symmetrically across expansions and contractions.<br/><br>
<br/><br>
In the second essay, we look at one possible explanation for the asymmetry found in the first essay. To specify an empirical model, we utilize a theoretical model that suggests that the effects of fiscal policy on private consumption depend on the level of government debt. If the theoretical model can be used to explain the asymmetries in fiscal policy effects, the effect of changes in transfers should vary with the level of government debt. Using a time-varying parameter model, to study if the Swedish experience is consistent with the prediction of the theoretical model, we find evidence indicating that government debt can be used to explain asymmetries in fiscal policy effects.<br/><br>
<br/><br>
In the third essay, we investigate if government consumption, by acting either as a substitute for, or a complement to, private consumption, can help explain the non-Keynesian effects of fiscal policy that have occurred in Denmark, Germany, Ireland and Sweden. By using econometric methodologies, that both exogenously and endogenously recognize that government consumption can act as either a substitute for or a complement to private consumption, we find that the empirical evidence indicates that the complement/substitution dichotomy can help explain the non-Keynesian effects of fiscal policy that have been previously documented in Denmark, Ireland and Sweden.<br/><br>
<br/><br>
In the fourth essay, we investigate the effects of cross-sectional correlation in a homogeneous panel data unit root test. We find that cross-sectional correlation causes size distortions, and investigate how well one existing remedy works. We find that the remedy is inappropriate in small samples, and suggest a small-sample homogeneous panel data unit root test that has good size properties in the presence of cross-sectional correlation. To illustrate the adverse effects of cross-sectional correlation in empirical applications of panel data unit root tests, we test the random walk hypothesis for private consumption.<br/><br>
<br/><br>
In the fifth essay, we extend the scope of the analysis in the fourth chapter to include stationarity testing in panel data. We show that a panel data stationarity test is size-distorted when errors are cross-sectionally correlated, and suggest an orthogonalization procedure to eliminate the size distortions. By applying both the test that does not account for cross-sectional correlation, and the test suggested in the fifth essay, to test for output convergence, we show that inference from panel data stationarity tests can be adversely affected if cross-sectional correlation is not accounted for.},
  author       = {Jönsson, Kristian},
  issn         = {0460-0029},
  keyword      = {ekonomiska system,ekonomisk politik,economic systems,economic theory,econometrics,Economics,Cross-Sectional Dependence,Output Convergence,Unit Root,Stationarity,Panel Data,Government Consumption,Non-Keynesian Effects,Private Consumption,economic policy,Nationalekonomi,ekonometri,ekonomisk teori,Fiscal Policy},
  language     = {eng},
  pages        = {135},
  publisher    = {Department of Economics, Lund Universtiy},
  school       = {Lund University},
  series       = {Lund Economic Studies},
  title        = {Essays on Fiscal Policy, Private Consumption and Non-Stationary Panel Data},
  year         = {2005},
}