Fiscal Policy and Fiscal Fragility: Empirical Evidence from the OECD
IWH Discussion Papers,
In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growth, conditional on the fragility of government finances. Based on a database of fiscal plans in OECD countries, we show that spending shocks are less detrimental than tax-based consolidation. In times of fiscal fragility, our results indicate strongly that governments should consolidate through surprise policy changes rather than announcements of consolidation at a later horizon.
Should We Use Linearized Models To Calculate Fiscal Multipliers?
Journal of Applied Econometrics,
We calculate the magnitude of the government consumption multiplier in linearized and nonlinear solutions of a New Keynesian model at the zero lower bound. Importantly, the model is amended with real rigidities to simultaneously account for the macroeconomic evidence of a low Phillips curve slope and the microeconomic evidence of frequent price changes. We show that the nonlinear solution is associated with a much smaller multiplier than the linearized solution in long-lived liquidity traps, and pin down the key features in the model which account for the di¤erence. Our results caution against the common practice of using linearized models to calculate scal multipliers in long-lived liquidity traps.
Interactions Between Regulatory and Corporate Taxes: How Is Bank Leverage Affected?
IWH Discussion Papers,
Regulatory bank levies set incentives for banks to reduce leverage. At the same time, corporate income taxation makes funding through debt more attractive. In this paper, we explore how regulatory levies affect bank capital structure, depending on corporate income taxation. Based on bank balance sheet data from 2006 to 2014 for a panel of EU-banks, our analysis yields three main results: The introduction of bank levies leads to lower leverage as liabilities become more expensive. This effect is weaker the more elevated corporate income taxes are. In countries charging very high corporate income taxes, the incentives of bank levies to reduce leverage turn ineffective. Thus, bank levies can counteract the debt bias of taxation only partially.
06.09.2018 • 17/2018
The Cyclical upswing in Germany continues, in spite of foreign demand losing momentum
In autumn 2018, the global economy continues to expand quite strongly. Whereas the cyclical upswing in the USA has gained even more strength, the economy in the Euro area has weakened somewhat. To a lesser extent, this also applies to the German economy. “According to this forecast, the growth rate of German real gross domestic product will be 1.8% in 2018 and 1.7% in 2019. The East German economy will expand by 1.5% this year and by 1.4% in 2019”, says Oliver Holtemöller, head of the Department Macroeconomics and vice president at IWH.
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Brown Bag Seminar
Brown Bag Seminar Financial Markets Department The seminar series "Brown...
19.04.2018 • 7/2018
Joint Economic Forecast Spring 2018: Germany’s Economic Experts Raise Forecast Slightly
Berlin, 19 April – Germany’s leading economic experts raised their forecasts for 2018 and 2019 slightly in their Spring Joint Economic Forecast released on Thursday in Berlin. They now expect economic growth of 2.2 percent for this year and 2.0 percent for 2019, versus 2.0 percent and 1.8 percent respectively in their autumn forecast. “The German economy is still booming, but the air is getting thinner as unused capacities are shrinking“, notes Timo Wollmershaeuser, ifo Head of Economic Forecasting. Commenting on the new German government’s economic policy, he adds: “It is precisely when the government’s coffers are full that fiscal policy should reflect the implications of its actions for overall economic stability and the sustainability of public finances. The extension of statutory pension benefits outlined in the coalition agreement runs counter to the idea of sustainability.”
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