Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268060 
Year of Publication: 
2022
Series/Report no.: 
Discussion Papers No. 984
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
We analyse how fiscal policy affects both the macroeconomy and the industry structure, using a multi-sector macroeconomic model of the Norwegian economy with an inflation targeting monetary policy. Our simulations show that the government spending multiplier in the case of a permanent expansionary fiscal policy coupled with a Taylor-type interest rate rule is around 1 over a ten-year horizon. The corresponding labour tax multiplier is about 0.5. These multipliers are somewhat larger in the case of a transitory fiscal stimulus. The government spending multiplier, in the case of either a permanent or a transitory fiscal stimulus, is considerably larger than 1 when monetary policy is made accommodative by keeping the interest rate fixed. Our simulations also show that the industry structure is substantially affected by an expansionary fiscal policy, as value added in the non-traded goods sector increases at the expense of value added in the traded goods sector. The contraction of activity in the traded goods sector increases when monetary tightening accompanies the fiscal stimulus. Hence, we find that such a policy mix is likely to produce significant de-industrialisation in a small open economy with inflation targeting.
Subjects: 
Fiscal Policy
Macroeconomy
Industry Structure
Model Simulations
JEL: 
E17
E52
E62
Document Type: 
Working Paper

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