We build a dynamic general equilibrium model with heterogeneous households, namely Rich and Poor, and capital skill complementarity structure in the production function, to study aggregate and distributional implications of fiscal consolidation policies when the government uses a rich set of spending and tax instruments. Fiscal policy is conducted through constrained optimized fiscal rules. Our results show that, in the long run, fiscal consolidation enhances both aggregate efficiency and equity; however, it may hurt Rich households depending on which fiscal instrument takes advantage of the fiscal space created. Along the transition, wage inequality significantly increases due to the capital skill complementarity structure of the production function. Specifically, this happens because debt consolidation crowds in capital and this favours Rich (skilled) households. On the other hand, the reduction in interest rates and government bonds lead to a decrease in Rich households income coming from capital and government bonds which eventually decrease income inequality. Finally, a rather novel finding is that the combination of asset and skill heterogeneity amplifies the increase in wage inequality in the early phase of fiscal consolidation.

This paper reassesses the predictions of the standard Barro-type endogenous growth models drawing on recent developments in the panel time series literature. In particular, we employ the Common Correlated Effects (CCE) estimator developed in Pesaran (2006) and estimate the effects of fiscal policy for a panel of EU countries using annual data from 1995 to 2017. Our results provide strong support for the predictions of the standard endogenous growth model. More importantly, the CCE estimation generates significantly larger effects of fiscal policy on growth with respect to the other widely used estimation methods. Our comparative analysis indicates that estimation methods which ignore the heterogeneous impact of unobserved common factors across countries could lead to a significant underestimation of the effects of fiscal policy on growth.

This article employs the newly developed FIR-GEM model to compute fiscal multipliers in Ireland for the main tax-spending policy instruments, namely government consumption, public investment, public wages, public transfers, consumption, capital and labour taxes. We focus on the short run fiscal multipliers as a measure to evaluate the effect of a temporary fiscal stimulus policy over three years. We find that the size of output multipliers crucially depends on the openness of the Irish economy and the method of fiscal financing employed. Our main results indicate that spending increases or tax cuts increase Irish GDP but Irish fiscal multipliers are relatively smaller in magnitude due to the openness of the economy. That is the increase in aggregate output is partly offsetdue to the negative effect of a fiscal stimulus in the Irish external balance. A fiscal expansion via spending increases or tax cuts results in a compositional change in aggregate Irish output. The positive effects on aggregate output come mostly from the stimulative effects induced in the non-tradable sector while the tradable sector remains unaffected or reduces in size. A fiscal stimulus is likely to crowd out exports and crowd in imports; this results in a deterioration in Irish trade balance. Magnitude-wise short run spending multipliers are consistently higher than short run tax multipliers. The highest fiscal multiplier effect is as a result of spending on public investment and government consumption. A fiscal stimulus via spending and consumption tax cuts have a higher effect on impact but can put upward pressures on domestic prices vis-à-vis the rest of the world and lead to a deterioration in Irish international competitiveness in the longer run. A fiscal stimulus via income tax cuts take more time to materialize and has a smaller effect on impact but the stimulus can reduce production costs and prices. This improves the international competitiveness of the Irish economy and has a more positive effect over the longer-term.

This paper builds a two-country Heterogenous Agents New Keynesian (HANK) model for the Euro Area (EA). The two countries differ in the degree of public indebtedness, i.e., the Periphery has a relatively higher public debt-output ratio vis-à-vis the Core. The model captures some key features of the EA's cross- and within-country heterogeneity over the 2010-2020 period. We use this model as a vehicle to study fiscal consolidation policy and reforms of EA fiscal targets. We find that public debt asymmetry can explain qualitatively, and to some extent quantitatively, EA macroeconomic imbalances and within-country disparities. We find that a fiscal consolidation scenario that mimics the current EA institutional arrangements, i.e., the Maastricht Treaty and the Stability Growth Pact Agreement, would result in significant welfare losses, especially for the wealth-poor and wealth-median in the Periphery; the welfare losses amount to 2.42% and 2.21% of their lifetime consumption in the status quo stationary equilibrium, respectively. A revision of EA fiscal targets closer to their current values, e.g., 100% for the Periphery and 70% for the Core, does not generate a conflict of interest between wealth-rich and -poor households across and within countries. Thus, our analysis provides a strong rationale for reforming EA debt targets. Such reform could make more affordable fiscal consolidation for the large proportion of households in the Periphery, e.g., it reduces the welfare losses from 2.42% to 1.24% for the wealth-poor households in the Periphery. Surprisingly, a Core expansion (i.e., a higher public debt-output ratio) while the Periphery consolidates would not benefit a large proportion of households in the Periphery, especially those with relatively fewer asset holdings in the status quo stationary equilibrium. Such a reform generates a conflict of interest between the Core's households and the wealth-poor/median households in the Periphery. Furthermore, a hawkish monetary policy reaction against inflation during fiscal consolidation generates a conflict of interest between the wealth-rich in the union and the wealth-poor households in the Periphery. Such policy disproportionately benefits households who hold more assets in the status quo equilibrium. Regarding fiscal policy mix, fiscal consolidation via spending cuts instead of tax hikes disproportionally harms the households with relatively higher asset holdings in the status quo stationary equilibrium, but it is less harmful for the wealth-poor households in the Periphery.

This paper presents FIR-GEM: Fiscal IRish General Equilibrium Model. FIR-GEM is a small open economy DSGE model designed as fiscal toolkit for fiscal policy analysis in Ireland. To illustrate the model's potential for fiscal policy analysis, we conduct three types of experiments. First, we analyse the fiscal transmission mechanism through which Irish fiscal policy affects the Irish economy. Second, we compute fiscal multipliers for the main tax-spending instruments, namely government consumption, public investment, public wage bill, public transfers, consumption, labour and capital tax. We focus on a fiscal policy stimulus that is either implemented through spending increases or tax cuts. Third, we perform robustness analysis on key structural characteristics that can affect quantitatively the size of fiscal multipliers. We find that the size of fiscal multipliers in the Irish economy heavily depends on its degree of openness, the method of fiscal financing employed, the elasticity of the sovereign risk premia to Irish debt dynamics and the flexibility of Irish labour and product markets.

We develop a novel approach to construct quarterly time series data for annually measured intangible investment variables. We accomplish this by using machine learning methods to explore the relationship between these variables and key macroeconomic time series available on a quarterly frequency. The proposed approach offers some advantages over other econometric techniques. Specifically, it does not not require any ex-ante assumptions for the link between the quarterly time series and their annual counterparts, and it is free from issues such as multicollinearity and endogeneity, requiring almost no data pre-processing. To demonstrate the usefulness of the constructed data, we present some bysiness cycle facts for the intangible economies of Eurozone and estimate a dynamic factor model.

We study optimized monetary and fiscal feedback policy rules. The setup is a conventional New Keynesian DSGE model calibrated to match data from the euro area. Our aim is to welfare rank alternative tax-spending policy instruments used for shock stabilization and/or debt consolidation when, at the same time, the monetary authorities follow a Taylor rule for the interest rate.

Assessing the contribution of intangible investment to growth is a challenging and complex task for any country. However, it has become increasingly difficult to determine both the exact magnitude of economic performance and its composition in the case of the Irish economy. This is mainly due to the impact of certain distortionary transactions by a select number of multinationals operating in the Irish jurisdiction. In this paper we address this issue by assessing, in a detailed manner, the contribution of intangible and tangible assets to the Irish growth story. We control for distortions in the official investment data series while also incorporating intangible assets which are not currently included in the National Accounts. Our results show that the observed unprecedented increase in the official intangible investment has a relatively minor contribution to the actual Irish labour productivity growth. Once the distortions are filtered out, Irish labour productivity growth is driven by tangible capital. More interestingly, non-national accounts intangible capital has a sizeable procyclical impact on labour productivity growth.