CFC REPRESENTATIVES VISITED VIENNA TO LEARN MORE ABOUT THE MEASUREMENT OF FISCAL POLICY IMPACT ON GDP

CFC REPRESENTATIVES VISITED VIENNA TO LEARN MORE ABOUT THE MEASUREMENT OF FISCAL POLICY IMPACT ON GDP

On 29 October 2019, the Austrian Fiscal Advisory Council (known as the “Fiskalrat”) organised a workshop on fiscal multipliers and government transfers. Put in simplified terms, the issue was how to most precisely measure the impact of fiscal policy (e.g., changes in public institution sector expenditure or tax changes) on gross domestic product. The meeting, held in Vienna, was attended by representatives of the Central Bank of Austria, representatives of the Organisation for Economic Cooperation and Development, representatives of research institutions concerned with economic policy, as well as ambassadors of national fiscal councils. For the Czech Fiscal Council Office, the workshop was attended by analysts Ivana Tománková and Ondřej Šíma.

The contributions presented showed, above all, the immense diversity of fiscal multiplier estimates in individual countries. Their values are influenced, on the one hand, by the characteristics of the economy for which they are being estimated (e.g., the level of openness to foreign trade, the monetary exchange rate regime, the presence of automatic stabilisers, the level of indebtedness), and, on the other, by the assumptions that researchers must make to obtain a result. Johannes Holler, of the Austrian Fiscal Advisory council, emphasised that, to this point, meta-analyses of fiscal multipliers have (erroneously) neglected the diversity of the methodologies employed. An exception is the recent study by Jan Čapek and co-authors which estimates the values of fiscal multipliers for Austria. The Czech Fiscal Council is currently in touch with Jan Čapek to discuss potential cooperation on estimates of fiscal multipliers for the Czech economy, as well.

In the context of the activities of fiscal councils, fiscal multipliers play an important role in analyses of the impacts of fiscal measures on budgets (known as costing). Given the diversity of their estimated values, correct application of multipliers calls for transparency in terms of the methods whereby they were determined. “It is positive that the currently most frequently used macroeconomic models of the so-called Neo-Keynesian economics, which are often incorrectly identified as models used solely by central banks, where fiscal policy is a mere supplement, are also being used in fiscal policy,” said Ondřej Šíma, analyst of the Czech Fiscal Council Office, in evaluating the contents of the meeting.

(Photo: Ondřej Šíma)