Cover IMF Working Papers
Mr. Ricardo’s Great Adventure: Estimating Fiscal Multipliers in a Truly Intertemporal Model
Author: Ms. Silvia Sgherri and Mr. Tamim Bayoumi
Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 168
Language:
English
Publication Date:
01 Jul 2006
DOI:
https://doi.org/10.5089/9781451864281.001
ISBN:
9781451864281
ISSN:
1018-5941
Pages:
30
Keywords:
WP; consumption function
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We estimate tax multipliers in a "Blanchard-Yaari" consumption model where Ricardian equivalence is broken because the private sector discounts the future at a faster rate than the real rate of interest. The model fits U.S. data since 1955 extremely well-entailing a discount wedge of around 20 percent a year and fiscal multipliers of 0.15-0.4-depending on the permanence of the change in taxes/transfers, and is much superior to one that assumes some consumers are fully Ricardian and others follow simple rules of thumb. The implied high private sector rate of discount has wide implications for policymakers.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund