Empirical essays in fiscal policy

Abstract

The core of this thesis consists of three chapters. In the first chapter we introduce fiscal policy of trading partners in the study of the effect of fiscal policy on the domestic growth rate. The effects of economic conditions and fiscal policy in trading partners on the domestic economy, in conjunction with fiscal policy in the home country, are the main object of this study. In a panel of OECD economies, we find that the cyclically-adjusted external primary deficit plays a role in determining the growth rate of the home country. Small changes in the fiscal stance of trading partners affect the domestic economy more than large changes. This might be attributed to the transitory nature of large changes and the reaction of the exchange rate and interest rate. Fiscal policy coordination it then more important during normal times.