Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/25964 
Year of Publication: 
2007
Series/Report no.: 
CESifo Working Paper No. 1919
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper develops a dynamic stochastic general equilibrium model to examine the quantitative macroeconomic implications of countercyclical fiscal policy for France, Germany and the UK. The model incorporates real wage rigidity which is the particular market failure justifying policy intervention. We subject the model to productivity shocks and use either government consumption or investment to react to the output gap or the public debt-to-output ratio. If the object of fiscal policy is purely to stabilize output or debt volatility, then our results suggest substantial reductions can be obtained, especially with respect to output. In stark contrast, however, a formal general equilibrium welfare assessment of the volatility implications of these alternative instrument/target combinations reveals the welfare gains from active policy, measured as a share of consumption, to be very modest.
JEL: 
E6
H5
Document Type: 
Working Paper
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