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BALANCED BUDGET MULTIPLIERS FOR SMALL OPEN REGIONS WITHIN A FEDERAL SYSTEM: EVIDENCE FROM THE SCOTTISH VARIABLE RATE OF INCOME TAX
Author(s) -
Lecca Patrizio,
McGregor Peter G.,
Swales J. Kim,
Yin Ya Ping
Publication year - 2014
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/jors.12113
Subject(s) - economics , computable general equilibrium , small open economy , income tax , amenity , variable (mathematics) , consumption (sociology) , macroeconomics , balanced budget , monetary economics , public economics , monetary policy , mathematical analysis , social science , mathematics , finance , sociology , politics , political science , law
This paper explores the impact on aggregate economic activity in a small, open region of an income tax funded expansion in public consumption that has no direct supply‐side effects. The conventional balanced budget multiplier produces an unambiguously positive macroeconomic stimulus, but the incorporation of negative competitiveness elements, through the operation of the local labor market, renders this positive outcome less certain. Simulation using a single‐region Computable General Equilibrium (CGE) model for Scotland demonstrates that the creation of local amenity effects, and the extent to which these are incorporated into local wage bargaining, is central to the analysis.