Balanced Budget Government Spending in a Small Open Regional Economy

Patrizio Lecca, Peter McGregor, Kim Swales

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Abstract

This paper investigates the impact of a balanced budget fiscal policy expansion in a regional context within a numerical dynamic general equilibrium model. We take Scotland as an example where, recently, there has been extensive debate on greater fiscal autonomy. In response to a balanced budget fiscal expansion the model suggests that: an increase in current government purchase in goods and services has negative multiplier effects only if the elasticity of substitution between private and public consumption is high enough to move downward the marginal utility of private consumers; public capital expenditure crowds in consumption and investment even with a high level of congestion; but crowding out effects might arise in the short-run if agents are myopic.
Original languageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Pages1-40
Number of pages40
Volume10
Publication statusPublished - 2010

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Keywords

  • regional computable general equilibrium analysis
  • fiscal federalism
  • fiscal policy

Cite this

Lecca, P., McGregor, P., & Swales, K. (2010). Balanced Budget Government Spending in a Small Open Regional Economy. (20 ed.) (pp. 1-40). Glasgow: University of Strathclyde.