• Blanchard, O. , Perotti, R. (2002). An empirical characterization of the dynamic effects of changes in government spending and taxes on output. => • 1. Paper associate with theme of government spending and reflects main ideas; • 2. Authors are rather famous; • 3. Paper is not very old to show recent economic situation and it is not very recent to be fundamental; • 4. It was published in the Quarterly Journal of Economics (an elder English-speaking journal)
• Purpose: to characterize the dynamic effects of shocks in government spending and taxes on economic activity in the United States during the postwar period • Assumptions: relying on institutional information about the tax and transfer systems and the timing of tax collections; focusing on twovariable breakdowns of the budget: an expenditure and a revenue variable; an approach is actually better suited for the study of fiscal policy; We define the expenditure variable as total purchases of goods and services, i. e. , government consumption plus government investment. We call it "government spending". We define the revenue variable as total tax revenues minus transfers (including interest payments). We call it "net taxes“; using quarterly data for identification of the fiscal shocks. • Model: structural VAR approach Yt=A(L, q)Yt-1+Ut where Yt=[Tt, Gt, Xt] is a three-dimensional vector in the logarithms of quarterly taxes, spending, and GDP, all in real, per capita, terms. A{L, q) is a four-quarter distributed lag polynomial that allows for the coefficients at each lag to depend on the particular quarter q that indexes the dependent variable.
• Results consistently show positive government spending shocks as having a positive effect on output, and positive tax shocks as having a negative effect. The size and persistence of these effects vary across specifications (for instance, whether we treat time trends as deteraiinistic or stochastic) and subperiods; yet, the degree of variation is not such as to cloud the basic conclusion. • We also consistently find a positive effect of government spending on private consumption,
