Non-Keynesian Effects of Fiscal Policy in the EU-15

• Main Author: Afonso, António
• Publication Date: 2001
• Format: Article
• Language: eng
• Source: Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
• Download full: http://hdl.handle.net/10400.5/2744
• topic: Fiscal Policy; Expansionary Fiscal Contractions; Non-Keynesian Effects; EU-15

The possibility of the so called "non-Keynesian" was illustrated by several fiscal episodes in Europe during the last two decades, giving rise to a growing body of both theoretical and empirical literature. The purpose of this paper is twofold. First, a simple two period model for private consumption is presented in order to explain the possibility of both Keynesian and non-Keynesian effects of fiscal policy, the main feature being the relation between interest rate and taxes and the existence of rationed consumers. Second, and in order to evaluate the empirical evidence for Europe, panel data models for private consumption are estimated for the EU-15 countries, using annual data over the period 1970 to 1999. The estimation results for the 15 EU countries show some evidence that fiscal policy has the standard Keynesian effects when there are no fiscal adjustments. However, in the presence of fiscal adjustments the traditional Keynesian effects may become non-Keynesian. This reversion occurs basically when the fiscal adjustment is a contractionary one, and is virtually unimportant when the adjustment is a fiscal expansion, revealing therefore some asymmetric consequences of fiscal policy.