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Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn >
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http://hdl.handle.net/10419/22975
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| Title: | | The Benefits of Gradualism in Government Expenditure Changes: Theory and Experimental Evidence  |
| Authors: | | von Hagen, Jürgen Kube, Sebastian Kaiser, Johannes Selten, Reinhard Pope, Robin |
| Issue Date: | | 2006 |
| Series/Report no.: | | Bonn econ discussion papers 2006,26 |
| Abstract: | | Government expenditure can be highly variable, if used as a countercyclical instrument, or as a response to economic crises or as a means of rapidly altering other features of the economy. An alternative policy setting is to keep government expenditure changes gradual and modest. It is shown that whether a more discretionary or a more stable usage of government expenditures better attains official sector macroeconomic goals is difficult to determine theoretically, in part because of missed risk effects. But the detecting which policy better meets the official sector macroeconomic goals from analysis of historical data or inter-country comparisons suffers from confounding events and institutions. This study offers a fresh insight from laboratory experiments. Our laboratory results favour gradualism in government expenditures, ie support the advocacy of more stable government expenditures offered in Friedman (1969), in Vernengo and Rochon (2000), and in the 2006 German tax change controversy, by that country?s local government sector. |
| Subjects: | | gradualism shock therapy discretionary or counter-cyclical government expenditure laboratory experiments |
| JEL: | | D80 D90 B20 E60 E62 E69 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn
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