5.4 Comparison with previous work
The fiscal impulse measure that we show in Figure 16can be compared with that using the three-variable SVAR of Claus et al (2006) using updated data. The Claus et al (2006) SVAR has three variables (net tax, government spending and GDP), estimated in first differences and the fiscal impulse is interpreted as the contribution of fiscal policy to GDP growth. The SVAR in our paper has five variables (net taxes, government spending, GDP, inflation and the interest rate) and feedbacks from the level of public debt. It is also estimated in levels and the fiscal impulse should therefore be interpreted as the contribution of fiscal policy to deviations in the level of GDP from trend (ie, the output gap).
Figure 20 shows that the two series are generally congruent which suggests that the interpretation of fiscal policy on the business cycle in this paper is somewhat robust to model specification. It also suggests that inclusion of debt feedbacks have not been so large in New Zealand as to provide significantly different results as the model without debt feedbacks. The modest importance of debt likely reflects that public debt was relatively low in New Zealand from after the mid-1990s.
- Figure 20: Fiscal impulse
- Source: Authors' calculations.
