Resource title

The Benefits of Gradualism in Government Expenditure Changes: Theory and Experimental Evidence

Resource image

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Resource description

Government expenditure can be highly variable, if used as a countercyclical instrument, or as a response to economic crises or as a means of rapidly altering other features of the economy. An alternative policy setting is to keep government expenditure changes gradual and modest. It is shown that whether a more discretionary or a more stable usage of government expenditures better attains official sector macroeconomic goals is difficult to determine theoretically, in part because of missed risk effects. But the detecting which policy better meets the official sector macroeconomic goals from analysis of historical data or inter-country comparisons suffers from confounding events and institutions. This study offers a fresh insight from laboratory experiments. Our laboratory results favour gradualism in government expenditures, ie support the advocacy of more stable government expenditures offered in Friedman (1969), in Vernengo and Rochon (2000), and in the 2006 German tax change controversy, by that country?s local government sector.

Resource author

J├╝rgen von Hagen, Sebastian Kube, Johannes Kaiser, Reinhard Selten, Robin Pope

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22975

Resource license

Adapt according to the presented license agreement and reference the original author.