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Macroeconomic impacts of fiscal policy shocks in the UK : a DSGE analysis

Bhattarai, Keshab; Trzeciakiewicz, Dawid


Dawid Trzeciakiewicz


This paper develops and estimates a new-Keynesian dynamic stochastic general equilibrium (DSGE) model for the analysis of fiscal policy in the UK. We find that government consumption and investment yield the highest GDP multipliers in the short-run, whereas capital income tax and public investment have dominating effect on GDP in the long-run. When nominal interest rate is at the zero lower bound, consumption taxes and public consumption and investment are found to be the most effective fiscal instruments throughout the analysed horizon, and capital and labour income taxes are established to be the least effective. The paper also shows that the effectiveness of fiscal policy decreases in a small open-economy scenario and that nominal rigidities improve effectiveness of public spending and consumption taxes, whereas decrease that of income taxes.

Journal Article Type Article
Publication Date 2017-02
Journal Economic modelling
Print ISSN 0264-9993
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 61
Pages 321-338
APA6 Citation Bhattarai, K., & Trzeciakiewicz, D. (2017). Macroeconomic impacts of fiscal policy shocks in the UK : a DSGE analysis. Economic modelling, 61, 321-338.
Keywords Fiscal policy; DSGE model; UK economy
Publisher URL
Additional Information Authors' accepted manuscript of article published in: Economic modelling, 2016


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