Measuring the economic impact of the Federal Government budget: 1995-2000

Abstract

This paper presents a relatively simple method for analysing the effects of fiscal policy through the use of a set of weights for the various budget-items. The method provides separate measures of the effects of a given budget on aggregate domestic demand and on the balance of payments. The results of the analysis indicate that the Federal Government budget had a larger contribution to aggregate domestic demand from 1995 through 1999. However, the magnitude of improvement in the balance of payments in 1998 was much lower than the previous and subsequent year. In addition, the expansionary fiscal policies of 1997 through 1999 resulted in accelerated expansion ary movements of the money supply compared to the moderate movements during the contractionary fiscal periods of 1995 and 1996. We posit that, if the Federal Government budget for fiscal 2000 is judiciously implemented, then the budget would be expected to have a larger contribution to aggregate domestic demand, while its moderate expansionary impact would be sufficient to lead to an improvement in the balance of payments in fiscal, 2000. In addition, the expansionary impact of the budget is expected to result in accelerated expansionary movements in the broad money stock.