Please use this identifier to cite or link to this item:
http://dspace.mediu.edu.my:8181/xmlui/handle/10419/19082| Title: | Savers, spenders and fiscal policy in a small open economy |
| Keywords: | E21 F41 E62 ddc:330 rule-of-thumb consumers fiscal policy open economy Kleines-offenes-Land Finanzpolitik Sparen Theorie |
| Issue Date: | 16-Oct-2013 |
| Publisher: | |
| Description: | This paper analyzes the effects of fiscal policy in an open economy. We extend the saversspenders theory of Mankiw (2000) to a small open economy with endogenous labor supply. We first show how the Dornbusch (1983) consumption-based real interest rate for open economies is modified when labor supply is endogenous. We then turn to the effects of fiscal policy when there are both savers and spenders. With this heterogeneity taken into account, tax cuts have a short-run contractionary effect on domestic production, and increased public spending has a short-run expansionary effect. Although consistent with recent empirical work, this result contrasts with those of most other theoretical models. Transitory changes in demand have permanent real effects in our model, and we discuss the implications for real exchange-rate dynamics. We also show how ?rational? savers may magnify or dampen the responses of ?irrational? spenders, and show how this is related to features of the utility functions. |
| URI: | http://koha.mediu.edu.my:8181/xmlui/handle/10419/19082 |
| Other Identifiers: | http://hdl.handle.net/10419/19082 ppn:509704581 |
| Appears in Collections: | EconStor |
Files in This Item:
There are no files associated with this item.
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.