LIABILITY-CREATING VERSUS NON-LIABILITY-CREATING FISCAL STABILIZATION-POLICIES - RICARDIAN EQUIVALENCE, FISCAL STABILIZATION, AND EMU

This paper looks at theoretical and empirical issues associated with t he operation of fiscal stabilisers within an economy. It argues that s uch stabilisers operate most effectively at a national, rather than lo cal, level. As differing cycles across regions tend to offset each oth er for the country as a whole, national fiscal stabilisers are not ass ociated with the same increase in future tax liabilities for the regio n as local ones. Accordingly, the negative impact from the Ricardian e ffects associated with these tax liabilities is smaller. Empirical, wo rk on data across Canadian provinces indicates that local stabilisers are only 1/3 to 1/2 as effective as national stabilisers which create no future tax liability.