NDLI: Budgetary shocks and revenue adjustment: How governments respond to unexpected fiscal shocks

Content Provider	Springer Nature Link
Author	Sddon, T.
Copyright Year	2004
Abstract	This paper uses panel data from seven Canadian provinces which received Equalization payments over the period 1980/81 to 1995/96 to examine how provinces adjust own-source revenue in response to past budget shocks. Governments respond symmetrically to past own-source revenue shocks: they increase or reduce own-revenue by $0.75 for every unexpected dollar shock in own-source revenue last year. In contrast, revenue responses to past grant shocks are asymmetric. Provinces lower own-source revenue by $ 0.87 in response to an unexpected extra dollar from Equalization last year. But, they make no adjustment following an unexpected Equalization shortfall. The magnitude of these responses suggest that provinces see a significant component of these shocks to be persistent. Lastly, the results with respect to past spending shocks are mixed. In contrast to recent empirical results on asymmetric responses to changes in grants, the results in this paper suggest that, at least in the short run, unexpected increases in Equalization are unlikely to have a large, stimulative effect on government spending.
Starting Page	149
Ending Page	166
Page Count	18
File Format	PDF
ISSN	14356104
Journal	Economics of Governance
Volume Number	5
Issue Number	2
e-ISSN	14358131
Language	English
Publisher	Springer-Verlag
Publisher Date	2004-01-01
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Own-source revenue budget shocks grants
Content Type	Text
Resource Type	Article
Subject	Business and International Management Economics, Econometrics and Finance

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