Fiscal Policy in a Small Open Economy : An Integration of the Short-Run, Heckscher-Ohlin and Capital Accumulation Models

• this paper incorporates the response to fiscal policies described by the Heckscher-Ohllin and sector-specific-capital models within a more general framework of two-sector growth, for a small open economy with classical unemployment. The results of the short-run model are seen to apply when changes in fiscal policy are unanticipated while those of the model with intersectoral capital mobility are relevant when such changes are correctly anticipated. This is in sharp contrast to the conventional interpretation of these models as describing consecutive rather than alternative transition stages of the economy. Other results are that permanent bond-financing of deficits is unstable, temporary bond-financing has long-run contractionary effects, and that possible temporary increases in employment due to fiscal policy are likely to be dominated by subsequent reductions when public spending is financed by increased taxation.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Keyword

Economics

Nationalekonomi

Publication and Content Type

vet (subject category)

rap (subject category)