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The effects of income distribution and fiscal policy on aggregate demand, investment and the budget balance: the case of Europe

The effects of income distribution and fiscal policy on aggregate demand, investment and the budget balance: the case of Europe

Obst, Thomas, Onaran, Özlem ORCID: 0000-0002-6345-9922 and Nikolaidi, Maria (2019) The effects of income distribution and fiscal policy on aggregate demand, investment and the budget balance: the case of Europe. Cambridge Journal of Economics. ISSN 0309-166X (Print), 1464-3545 (Online) (In Press)

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Abstract

This paper develops a multi-country post-Kaleckian model that incorporates the role of the government. One key novelty of the model is that it integrates cross-country effects of both changes in income distribution and fiscal policy. The model is used to estimate econometrically the effects of income distribution and fiscal policy on the components of aggregate demand and the budget balance in EU15 countries. The results show that a simultaneous increase in the wage share in all EU15 countries would increase demand and the primary budget balance in all countries. A simultaneous increase in government spending turns out to boost economic activity in all the EU15 countries, indicating the positive economic effects of expansionary fiscal policy. Moreover, a progressive tax policy that would be implemented simultaneously at the EU level would lead to an increase in output in all countries.

Item Type: Article
Uncontrolled Keywords: Wage Share, Fiscal Multiplier, Demand Regime, Fiscal Policy
Subjects: H Social Sciences > HB Economic Theory
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Last Modified: 04 Jul 2019 12:16
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: GREAT 1
URI: http://gala.gre.ac.uk/id/eprint/24639

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