Balanced budget multipliers for small open regions within a federal system: evidence from the Scottish variable rate of income tax

Patrizio Lecca, Peter G. McGregor, J. Kim Swales, Ya Ping Yin

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

This paper explores the impact on aggregate economic activity in a small, open region of an income tax funded expansion in public consumption that has no direct supply-side effects. The conventional balanced budget multiplier produces an unambiguously positive macroeconomic stimulus, but the incorporation of negative competitiveness elements, through the operation of the local labor market, renders this positive outcome less certain. Simulation using a single-region Computable General Equilibrium (CGE) model for Scotland demonstrates that the creation of local amenity effects, and the extent to which these are incorporated into local wage bargaining, is central to the analysis.
LanguageEnglish
Pages402-421
Number of pages20
JournalJournal of Regional Science
Volume54
Issue number3
Early online date27 Feb 2014
DOIs
Publication statusPublished - Jun 2014

Fingerprint

federal system
income tax
multiplier
budget
computable general equilibrium analysis
bargaining
equilibrium model
amenity
macroeconomics
economic activity
wage
competitiveness
labor market
evidence
stimulus
supply
simulation
economics
rate
Income tax

Keywords

  • income tax
  • public consumption
  • macro-economic model
  • computable general equilibrium model
  • wage bargaining
  • fiscal expansion
  • local economic strategies
  • Scottish economy

Cite this

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title = "Balanced budget multipliers for small open regions within a federal system: evidence from the Scottish variable rate of income tax",
abstract = "This paper explores the impact on aggregate economic activity in a small, open region of an income tax funded expansion in public consumption that has no direct supply-side effects. The conventional balanced budget multiplier produces an unambiguously positive macroeconomic stimulus, but the incorporation of negative competitiveness elements, through the operation of the local labor market, renders this positive outcome less certain. Simulation using a single-region Computable General Equilibrium (CGE) model for Scotland demonstrates that the creation of local amenity effects, and the extent to which these are incorporated into local wage bargaining, is central to the analysis.",
keywords = "income tax, public consumption, macro-economic model, computable general equilibrium model, wage bargaining , fiscal expansion, local economic strategies, Scottish economy",
author = "Patrizio Lecca and McGregor, {Peter G.} and Swales, {J. Kim} and Yin, {Ya Ping}",
note = "This is the accepted version of the following article: Lecca, P., McGregor, P. G., Swales, J. K. and Yin, Y. P. (2014), BALANCED BUDGET MULTIPLIERS FOR SMALL OPEN REGIONS WITHIN A FEDERAL SYSTEM: EVIDENCE FROM THE SCOTTISH VARIABLE RATE OF INCOME TAX. Journal of Regional Science, 54: 402–421. doi: 10.1111/jors.12113, which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1111/jors.12113/full.",
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AB - This paper explores the impact on aggregate economic activity in a small, open region of an income tax funded expansion in public consumption that has no direct supply-side effects. The conventional balanced budget multiplier produces an unambiguously positive macroeconomic stimulus, but the incorporation of negative competitiveness elements, through the operation of the local labor market, renders this positive outcome less certain. Simulation using a single-region Computable General Equilibrium (CGE) model for Scotland demonstrates that the creation of local amenity effects, and the extent to which these are incorporated into local wage bargaining, is central to the analysis.

KW - income tax

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KW - macro-economic model

KW - computable general equilibrium model

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KW - fiscal expansion

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