Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/256989 
Authors: 
Year of Publication: 
2019
Citation: 
[Journal:] Economies [ISSN:] 2227-7099 [Volume:] 7 [Issue:] 2 [Article No.:] 57 [Publisher:] MDPI [Place:] Basel [Year:] 2019 [Pages:] 1-15
Publisher: 
MDPI, Basel
Abstract: 
This paper investigates the impact of fiscal policy on private consumption and labor supply in the UK economy using time-varying parameter vector autoregression (TVP-VAR) with stochastic volatility for the period Q2 1987 to Q2 2017. It considers fiscal variables such as government expenditure and net tax revenue and evaluates their impact on private consumption and average hours worked per week. Three sample periods were selected and two approaches were used to identify impulse responses, first taking the average of stochastic volatility over the sample period, and then allowing for sign restrictions based on contemporaneous relationships among the selected variables. The study found a negative wealth effect of public spending on private consumption and a positive effect on hours worked, as people tend to work more hours to maintain the same standard of living. Similarly, a tax shock generates negative effects on consumption but the impact on worked hours remains unclear over a three-year time horizon. These findings are almost consistent across sample periods and alternative specifications of impulse responses. This is one of only a few studies to determine the linkages between fiscal policy and the labor market using a macroeconomic framework.
Subjects: 
fiscal policy
private consumption
labor market
time-varying parameters
JEL: 
C55
E21
E24
F62
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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