The dynamic effects of fiscal policy in Denmark

Student thesis: Master thesis (including HD thesis)

  • Katrine Gravergaard
4. term, Science in Economics, Master (Master Programme)
The purpose of the thesis is to estimate the effects of fiscal policy in Denmark and to understand how the corona crisis has affected the effects of fiscal policy. The theory of expansionary fiscal policy is that an increase in government spending will increase GDP through an increase in employment and private consumption. The effect of an expansionary fiscal policy can be estimated through a SVAR model whereas the dynamic effects throughout time can be estimated through impulse response functions from the SVAR model. By using a shock to the government spending for the period of 1991--2019 and 1991--2021 will the difference between the two results show how the dynamic effects of fiscal policy have been during the corona crisis. The empirical results from the period 1991--2019 show that a shock to the government spending has a positive impact on GDP and employment, whereas private consumption is affected negatively. This indicates that the Danish consumers react in a Ricardian equivalence. These effects are however mostly not significant, only for government spending throughout the whole period and for one quarter for GDP and private consumption. The impact multiplier is 0,3 whereas the one-year multiplier is 0,1. This shows therefore that the effect of an expansionary fiscal policy is short-lived. The empirical results from the period 1991--2021 show however that private consumption is affected positively, and GDP is more persistent. In these results government spending is still significant, but now private consumption and employment have a little longer period of significant estimates. Furthermore, the impact multiplier and the one-year multiplier are both 0,4. Therefore, the effect of fiscal policy has somewhat changed during the corona crisis, especially for private consumption and how persistent the expansionary fiscal policy is.
LanguageDanish
Publication date3 Jun 2022
Number of pages84
ID: 472090927