Appendix: Suggestions for Future Simulations

Transcription

1 Appendix: Suggestions for Future Simulations The chapters of this book have drawn upon simulations for a number of countries and country groups, all of which throw some light on the effects of changes in different fiscal measures upon different macro objectives. But the questions asked and answered in these various simulations differ greatly from one set of simulations to another. In addition to the inevitable variations between models as a consequence of their construction, there are ways in which the questions asked by the modellers, and so the answers they give, could be made more helpful for guidance about macroeconomic policy, and for comparing results of simulations using one model with those from another. In the first place, there are many simulations that ask only about the effects of one fiscal policy measure - usually government spending, on some definition. No use has been made of these simulations in this book, as they fail to compare the effects of different fiscal measures having the same effect on the budget balance. Some of those simulations even state that they are indications of the effects of a 'fiscal policy' change - as if the results could be expected to be the same whatever the fiscal policy measure being varied. (If that were in fact so, it would be essential to provide evidence of this.) But, as we have seen, all the models that simulate more than one fiscal policy change (having the same effect on the budget balance) indicate that the effects on the main macro objectives vary greatly between one fiscal measure and another. Instead of saying that a simulation shows the results of a 'fiscal policy' change, therefore, it is important always to specify the actual fiscal measure being simulated, and to simulate more than one of them. In the second place, it would be helpful if more than one policy measure on the tax side and more than one on the outlay side were always to be changed in future model simulations. For we have found ample evidence to suggest that different outlays, and different tax changes, have very different effects (in size and even in direction) upon particular macroeconomic objectives for the same effect on the budget balance. This is, in any case, what one would expect on a priori grounds - though that is implicitly being ignored when people discuss macroeconomic policy in terms of changes in the budget deficit or surplus. On the tax side, at the very least there should be distinctions drawn between indirect taxation, income taxation and taxes on labour inputs (such 160

2 Appendix: Suggestions for Future Simulations 161 as payroll taxes and employers' social security or national insurance contributions). If other forms of tax changes and tax concessions can be distinguished also (as in the simulations for the US by McKibbin and Bagnoli drawn upon in this book) it would be more helpful still. On the government outlay side, at the very least one would wish to have government outlays on investment distinguished from government consumption outlays, and also from government transfer payments to households (and perhaps also those to businesses). There also appear to be significant differences (to judge from some of the simulations drawn upon in this book) between the effects of government non-wage expenditures and those of government employment expenditures. It is thus important to have these simulated separately - and not to draw policy conclusions about government outlays in general from simulations of only non-wage or only employment expenditures. Furthermore, in measuring the change in the budget balance, it would be helpful if there could be a greater measure of consistency in matters of measurement as between one simulation and another. There will inevitably be many differences in definition of the budget balance that is being used, but it would be most useful if the simulations could in future give results both for the initial impact on the budget balance in the year that the change is made, and then also for the effect on the budget balance in each year over the whole period for which the impact is being measured. Usually it is the effect on the budget in the initial year that receives most public attention; but if one aim is to affect the level of the national debt in relation to real output, and so the level of future debt servicing, the more appropriate indicator is the change in the budget balance over a period of years. As to the macroeconomic objectives the effects upon which are being simulated, the minimum that one would require would be the effects upon GDP/GNP and on inflation (or the price level). It is also desirable to have an indication of the effects on the current account balance; but this should always be complemented by a simulation of the effects on private investment or (preferably) total investment, including that in the public sector. Finally, the assumption about the setting of monetary policy being made in the simulation should be made explicit. Ideally, the simulations should be done with more than one such alternative assumption. For example, it is useful to be able to compare the effects of different fiscal instruments under the assumption of a non-accommodating monetary policy (in effect, with interest rates - real or nominal - being allowed to reflect the impact of the fiscal measures) with the results that follow if monetary policy is assumed to be 'accommodating' - that is, in effect holding interest rates (real or nominal) at the level they would have been in the absence of the fiscal measures.

3 References Bogaert, H. et al. (1990), 'A disequilibrium model of the Belgian economy', Economic Modelling, Vol. 7 No. 4. Beenstock, M. et al. (1994), 'A Macroeconometric Model for Israel', Economic Modelling, Vol. 11, No. 4. Bradley, J. et al. (1995), 'HERMIN Ireland', Economic Modelling Vol. 12 No. 3, July. Chan-Lee, J. H. and Kato, H. (1984), 'A Comparison of simulation properties of national econometric models', OECD Economic Studies, Spring. Church, K. B., Mitchell, P. R., Smith, P. N. and Wallis, K. F. (1993), 'Comparative Properties of Models of the UK economy', National Institute Economic Review, August. Church, K. B., Mitchell, P. R., Smith, P. N. and Wallis, K. F. (1995), 'Comparative Properties of Models of the UK economy', National Institute Economic Review, August. Dramais, A. (1986), 'COMPACT - a Prototype Macroeconomic Model of the European Community and the World Economy', European Economy, March. Herce, J- A. and Sosvilla-Rivero, S. (1995), 'HERMIN Spain', Economic Modelling, Vol. 12, No. 3. Knoester, A. (1983), 'Stagnation and the Inverted Haavelmo Effect: Some International Evidence', De Economist, Vol. 131 No. 4.; also as Netherlands Ministry of Economic Affairs Reprint Knoester, A. (1988), 'Economic Growth in Europe, Japan and the United States', University of Nijmwegen Institute of Economics Research Memorandum No Knoester, A. (ed.) (1993), Taxation in the United States and Europe, Basingstoke and London: Macmillan. Knoester, A. (1995), 'The Inverted Haavelmo Effect and its Implications for European Economic Policy', Research Centre for Economic Policy, Erasmus University of Rotterdam Research Memorandum Knoester, A. and Kolodziejak, A. (1994), 'Effects of Taxation in Economic Models: A Survey', Economic Modelling Vol. 9 No. 4, October; also as Research Centre for Economic Policy, Erasmus University of Rotterdam Reprint Leibfritz, W., Roseveare, D. and Van den Noord, P. (1994), 'Fiscal Policy, Government Debt and Economic Performance', OECD Economics Department Working Paper, No McKibbin, W. and Bagnoli, P. (1993), 'Fiscal Deficit Reduction: An Evaluation of Alternatives', Brookings Discussion Papers in International Economics No. 101, July. Modesto, L. and Neves, P. (1995), 'HERMIN: Portugal', Economic Modelling, Vol. 12 No. 2, July. Perkins, J. O. N. (1979), The Macroeconomic Mix to Stop Stagflation, London: Macmillan. 162

4 References 163 Perkins, J. O. N. (1982), Unemployment, Inflation and New Macroeconomic Policy, London: Macmillan. Perkins, J. O. N. (1985), The Macroeconomic Mix in the Industrialised World, London: Macmillan. Perkins, J. O. N. (1990), A General Approach to Macroeconomic Policy, London: Macmillan. Richardson, Pete (1987), 'A Review of the Simulation Properties of the OECD's Interlink Model', OECD Economics and Statistics Department Working Papers, No. 47. Richardson, P., Giotto, C. and Thurman, S. (1994), 'Macroeconomic performance and fiscal policy adjustments in the medium term: alternative medium term scenarios', OECD Working Paper Vol. II No. 56. Rock, James M. (ed.) (1991), Debt and the Twin Deficits Problem, Mountain View, CA: Mayfield Publishing Company. Wallis, K. F. and Whitley, J. D. (1991), 'Large-scale econometric models of national economies', Scandinavian Journal of Economics, Vol. 93 No. 2.

5 Index ADAM, model, 35, 57, 58, 72, 101, 134 Australia effects: on inflation, 65-6; on output, 24; on unemployment, 46-7 income taxation, effects: on inflation, 65-6; on output, 24; on unemployment, 46-7 investment: and imports, 82 consumption, and imports, 84 Bagnoli, W., 28-30, 52, 69, 91, 92, 123-4, 135, 136, 138, 162 BE (Bank of England), model, 32, 55, 71,99,128-30, 131 Beenstock, M., 74, 162 Belgium income tax, effects: on employment, 58-60; on gross capital formation, 94-6; on inflation, 73, 127; on net exports, 94-6; on 'net wealth', 94-6, 127; on output, 36-7, 127-8, 134-5; on unemployment, 58-60, indirect taxation, effects: on employment, 58-60; on gross capital formation 94-6; on inflation, 73, 127; on net exports, 94-6; on 'net wealth', 94-6, 127; on output, 36-7, 127-8, 134-5; on unemployment, 58-60, public investment, effects: on employment, 58-60; on gross capital formation, 94-6; on inflation, 73, 127; on net exports, 94-6; on 'net wealth', 94-6, 127; on output, 36-7, 127-8, 134-5; on unemployment, 58-60, 127-8, social security contributions, employers', effects: on employment, 58-60; on gross capital formation 94-6; on inflation, 73, 127; on net exports, 94-6; on 'net wealth', 94-6, 127; on output, 36-7, 127-8, 134-5; on unemployment, 58-60, social security transfers, effects: on employment, 58-60; on gross capital formation, 94-6; on inflation, 73, 127; on net exports, 94-6; on 'net wealth', 94-6, 127; on output, 36-7, 127-8; on unemployment, 58-60, public sector employment: on employment, 58-60, 134; on gross capital formation, 94 6; on inflation, 73, 127; on net exports, 94-6; on 'net wealth', 94-6, 127; on output, 36-7, 127-8, 134-5; on unemployment, 58-60, BOF4, model, 35, 55, 72, 101, 134 Bogaert, H., 36, 59, 60, 73, 95, 127 Bradley, J., 39,40, 74 Britain, see UK budget balance, budget deficits as a constraint, 147-8, and confidence, costs and benefits, 142-4, 147-8, 159 cyclical adjustment, definitions, effects on activity, 144-6, 148-9, and inflation, 13-20, 20-2, 151, 152 limits, 6-7 and net wealth,

6 Index 165 and saving, 158 rules of thumb, targeting, 1-2, 12-14, Canada effects: on current account, 86-8, 108, 110, 114, 115, 120, 121; on employment, 44-6; on inflation, 64-6, 85, 108, 109, ,121, 137-8; on investment, 86-8, ; on net wealth, 86-8, 108-9, 110, 114, 115, ; on output, 22-5, , , 121, 135; on unemployment, 44-7 account, 86-8, 108, 110, , 120, 121; on employment, 44-6; on inflation, 64-6, 85, 108, 109, , 121, 137-8; on investment, ; on net wealth 86-8, 108, 110, 114, 115, ; on output, 22,24, , , 121, 135; on unemployment, 44-7 policy, , Chan-Lee, J.H., 24, 46-7, 66, 88, , 121, 135, 136 Church, K.B., 31, 32, 54, 55, 71, 99, 131 Compact, model from Strathclyde, 31, 54,55,71 Compact, model from EEC, 162; see also Dramais, A. consumer prices, see inflation Corden, Max, 148 current account, as objective, Denmark government employment expenditure, effects: on current indirect taxation, effects: on current local 72, Dorrance, Graeme, 148 Dramais, A., 26, 27, 31, 47-8, 66-7, 91, EEC direct taxation, effects: on current account, 89-91, 97-8, 126; on inflation, 66-7, 125-6, 138, 139; on investment, 89-91,139; on net wealth, 91, 125-6; on output, 26-7, 31, 20, 125-6, 138, 139; on unemployment, 47-51, 125-6, 139 account, 89-91, 97-8, 126; on indirect taxation, effects: on current account, 89-91, 97-8, 126; on inflation, 66-7, 70, 73, 125-6, 138; on investment, 89-91,139; on net wealth, 89-91, 125-6; on output, 26-7, 31, 125-6, 138; on unemployment, 47-8, public investment, effects: on current account, 89-91, 97-8, 126; on inflation, 66-7, 125-6; on investment, 89-91,139; on net wealth, 89-91, 125-6; on output, 26-7, 31, 125-6; on unemployment, 47-8, public spending, effects: on current account, 89-91, 97-8, 126; on inflation, 66-7, 67-8, 125-6, 138; on investment, 89-91,139; on net wealth, 89-91, 125-6; on output, 26-7, 31,47-51, 125-6, 138 social security contributions, effects: on current account, 89-91,

7 166 Budget Deficits and Macroeconomic Policy 97-8, 126, 139; on inflation, 66-7,70,73, 125-6, 138; on investment, 89-91,139; on net wealth, 91, 125-6, 139; on output, 26-7, 31, 125-6; on unemployment, 47-8, Eisner, Robert, 2 Finland government employment expenditure, effects: on current indirect taxation, effects: on current ; on unemployment, 57 local income tax, effects,: on current France effects: on current account, 86-8, 108, 110, 114, 115, 120, 121; on employment, 44-7,112-14; on inflation, 64-6, 85, 100, 108, 109, ,121, 137; on investment, 85-8,113-15; on net wealth, 86-8, 108-9, 110, 114, 115, ; on output, 22-5,99-100, 100,111-13, , 121, 135; on unemployment, 44-7 account, 86-8, 108, 110, 114, 115, 120, 121; on employment, 44-7; on inflation, 64-6, 108, 109, , 121, 137; on investment, 86-8, ; on net wealth 86-8, 108, 110, 114, 115, ; on output, 22-5, , , 121, 135; on unemployment, 44-7 policy, , Germany (West) effects: on current account, 86, 88,108, 110, 114, 115,120, 121; on employment, 44-6, , 107-8; on inflation, 64-6, 85, 100, 108, 109, , 121; on investment, 86, ; on net wealth, 86, 108-9, 110, 114, 115, ; on output, 22-5, , , , 121, 135; on unemployment, 44-6, 46-7 account, 86, 88, 108, 110, , 120, 121; on employment, 44-6, 107-8; on inflation, 64-6, 85, 100, 108, 109, , 121, 137; on investment, 85-6, ; on net wealth, 86, 108, 110, 114, 115, ; on output, 22, , , , 121; on unemployment, 44-6, 46-7 direct taxation, effects: on output, 22, 111-1; on unemployment, 49 public spending, effects: on output, ; on unemployment, 44-7,49 social security contributions, effects: on output, 49, policy, , Goodhart, Charles, law, goverment non-wage expenditure, effects, see under EEC; OECD; individual countries government outlays, effects, see under EEC; OECD; individual countries Home, Jocelyn, 148

8 Index 167 income taxation, see under EEC; OECD; individual countries Ireland indirect taxation, effects: on inflation, 74; on output, 40 public employment, effects: on inflation, 74; on output, 40 public investment, effects: on inflation, 74; on output, 40 Italy effects: on current account, 86-8, 108, 110, 114, 115, 120; on employment, 45, 107-8, ; on inflation, 64-6, 100, 108, , 121, 137; on investment, 86-8, ; on net wealth, 86-8, 108-9, 110, 114, 115, ; on output, 22-4,99-100, , , 135; on unemployment, 44-7 account, , 110, , 120; on employment, 45; on inflation, 64-6, 108, 109, , 137; on investment, 86-8, ; on net wealth 86-8, 108, 110, 114, 115, ; on output, 22-4, , , 135; on unemployment, 44-7 policy, , Japan direct taxation, effects on output, 33 effects: on current account, 86-8, 108, 110, 114, 115, 120; on employment, 45, 107-8,112-14; on inflation, 64-6, 100, 108, 109, , 121, 137; on investment, 86-8, ; on net wealth, 86-8, 108-9, 110, 114, 115, ; on output, 22-4, 34, ,111-13, , 135; on unemployment, 44-7 account, 86-8, 108, 110, , 120; on employment, 44-6, , 107-8; on inflation, 64-6, 108, 109, , 137; on investment, 86-8, ; on net wealth 86-8, 108, 110, 114, 115, ; on output, 22-4, 34, , , , 135; on unemployment, 44-7 policy, , Kato, H., 24, 46-7, 66, 88, , 121,135, 136 KESSU, model, 35, 57, 58, 72, 101, 134 Knoester, A., 30, 33, 34, 37, 48, 49, 56, 57,61,97, 135, 136-7, 162 Kolodziejak, A., 37, 97, 136 KOSMOS, model, 35, 57, 58, 72, 101, 134 LBS (London Business School), model, 31, 32, 54, 55,71,99 Leibfritz, W., 20, 44, 162 Lucas, Robert, 13 McKibbin, W 28-30, 52, 69, 91, 92, 123-4,135, 136, 138, 162 Mitchell, P.R., 162 MODAG, model, 35, 57, 58, 72, 101, 134 Modesto, L., 39, 61-2,74, 162 monetary policy, relevance for exchange rate policy, 104-6, national insurance contributions, employers', effects: on current account, 91,99, 101; on employment, 50-2; on inflation, 70-1; on output, 32; on unemployment, 50-2

9 168 Budget Deficits and Macroeconomic Policy Netherlands direct taxation, effects: on output, 23-4, 34-5, 37-8, 56-7; on unemployment, 60-1 effects: on output, 23-4; on unemployment, 46-7, income tax, effects: on output, 23-4; on unemployment, 46-7; public expenditure, effects: on output, 34-5, 37-8; on unemployment, 56-7, 60-1 public investment, effects on output, 37-8 social security contributions, effects on unemployment, 56-7 net wealth definition, 78 as objective, Neves, P.D., 39, 61-2, 162 New Zealand, government non-wage expenditure, effects: on inflation, 66; on output, 24 income tax, effects: on inflation, 66; on output, 24 NIESR (National Institute of Economic and Social Research), model, 31, 32, 71, 53, 54, 55, 71, 99, , 131 Norway government employment expenditure, effects: on current 72,118-19; on output, 35, indirect taxation, effects: on current local income tax, effects,: on current 72,118-19; on output, 35, OECD direct taxation, effects: on inflation, 63,64,67,73,104-6,123; on employment, 41-6; on output, 19-22,134-5; on unemployment, 41-6 exchange rate policy, relevance for fiscal policy in major countries, effects: on inflation, 63, 64, 67, 73, 104-6, 123, 137-8; on output, 20, 21, 104-6, 123, 134-5, 137; on unemployment, 43-7 policy, 104-6, 113, 'Interlink' model, 118, 150; see also Richardson, P.; Leibfritz, W; individual major OECD countries OEF (Oxford Economic Forecasting), model, 31, 32, 54-5, 71, 99, 129, 131 Perkins, J.O.N., xiv, 162 Portugal income tax, effects: on inflation, 74; on output, 38-9; on unemployment, 61-2 public investment, effects: on inflation, 74; on output, 38-9; on unemployment, 61-2 public sector employment, effects: on inflation, 74; on output, 38-9; on unemployment, 61-2 indirect taxation, effects: on inflation, 74; on output, 38-9; on unemployment, 61 2 price level, see inflation prices, see inflation public spending, effects, see under EEC; OECD; individual countries Richardson, P., 20, 22,44,46, 63, 65, 86,119,120,124,163 Roseveare, D., 162 Smith, P.N., 162 social security contributions, effects, see under EEC, OECD individual countries Spain direct taxation, effects on output, 40

10 Index 169 indirect taxation, effects on output, 40 public employment, effects on output, 40 public investment, effects on output, 40 STR (Strathclyde), model, 32, 55, 71, 99, Sweden government employment expenditure, effects: on current indirect taxation, effects: on current local taxation, effects, see under EEC; OECD; individual countries Thurman, S., 163 transfers to households, effects, see under EEC; OECD; individual countries UK consumption, and imports, 84 income taxation, effects: on current account, 85-8, 100, 108, 110, 114, 115, 120; on employment, 44_6, 53-4, 107-8, ; on inflation, 65-6, 85, 100,119, 137; on investment, 85-7, ; on net wealth, 85-8, 120; on output 22, 31,32, , , , 121,135; on unemployment, 44-6,53-6, government spending, effects: on current account, 98-9; on unemployment, 53-6 effects: on current account, 85-8,100,108,110,114,115, 120; on employment, 44-6, 108; on inflation, 65-6, 85,108, 109,118-20,121,128-30,137; on investment, 85-7, ; on net wealth, 85-8,108,110, 114, 115, ; on output, 22,99-100,111-13,118-20, 121, 135; on unemployment, 44-6,46-7,54, indirect taxation, effects: on current account, 99; on employment, 55; on inflation, 70-1; on unemployment, 53-5 investment, and imports, 82 policy, 108, 109,108, , 113 national insurance contributions, effects: on current account, 99; on inflation, 70-1; on output, 32; on unemployment, 71 PSBR, 1 as target, 152 PSFR, 1 US corporation tax, effects: on employment 51-2, 124; on inflation, 68-9, 123-5; on investment, 91-4; on output, 28-30, 135, 137; on trade balance, 91-4 direct taxation, effects: on employment, 43-5, 119,124; on net wealth, ; on output, 33, , 135, 137; on unemployment: 43-5, 46-7, 48-9 fiscal policy, government infrastructure investment, effects: on employment, 51-2,124; on inflation, 68-9, 123-5; on

11 170 Budget Deficits and Macroeconomic Policy investment, 91-^4; on net wealth, 91--4; on output, 28-30, 135; on trade balance, 91-4 government non-investment spending, effects: on employment, 51-2, 124; on inflation, 68-9, 123-5; on investment, 91-4; on net wealth, 91-4; on output, 28-30, 135; on trade balance, 91-4 effects: on current account, 86, 107,108, 110, 114, 115, 120-2; on employment 43-5, 107-8, , 119; on inflation, 68-9,85, 100,108, 109, 123-5; on investment, 85-8, 91-4; on net wealth, 85-8,91-4, ; on output, 22, 24, , 119, 121, 135;on unemployment, 13-14,44-6 government spending, effects: on employment, 51-2, ; on inflation, 65-6, 108,109, 119; on output, 33, , 135; on unemployment, 48-9, 55-6, 113 account, 86, 108, 110, 114, 115, 120-2; on employment, 44-6, 51-2, , 124; on investment, 85, 86, 91-4; on inflation, 65-6, 85, 108, 109, 119; on net wealth, 85-8, 91-4, , 114, 115, ; on output, 22, 24, 28-30,107-8, ,118-21, 123-5, 135, 137; on trade balance, 91-^; on unemployment, 44-6, 113 indirect taxation, effects: on employment, 51-2, 68-9, 124; on inflation, 68-9, 123-5; on investment, 91-4; on output, 28-30,68-9, 135 investment tax credit, effects, on employment, 51-2, 124; 68-9, 123 5; on investment, 91-4; on output, 28-30, 135; on trade balance, 91-4 labour tax credit, effects: on employment, 51-2, 124; on inflation, 68-9, 123-5; on investment^ 1 1; on net wealth, 91-4; on output, 28-30, 135; on trade balance, 91^-, on unemployment, 68-9 policy, 107, 108, 109,110 transfers to households, effects: on employment, 51-2, 124, 135; on inflation, 68-9, 73, 123-5; on investment, 91-4; on net wealth, 91-4; on output, 28-30, 135; on trade balance, 91-4 Van den Noord, P., 162 VAT, see indirect taxation Wallis, K.F., 35, 57, 58, 5.1, 72, 101, 134,163 Warwick, University Macroeconomic Modelling bureau, 70, 125,130, 146 see also Church, K.B.; Wallis, K.F. Whitley, J.D., 35, 57, 58, 5.1, 72, 101, 134,163