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MACROECONOMIC STABILIZATION AND LONG-TERM GROWTH: THE ROLE OF POLICY DESIGN

Published online by Cambridge University Press:  13 September 2019

Philipp Harting
Philipp Harting*
Affiliation:
Bielefeld University
*
Address correspondence to: Philipp Harting, Department for Business Administration and Economics, Bielefeld University, PO Box 100131, 33501 Bielefeld, Germany. e-mail: [email protected]
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Abstract

Do fiscal stabilization policies affect the long-term growth of the economy? If so, are the long-term effects growth enhancing or growth reducing? When addressing these questions from a theoretical perspective, the literature has typically emphasized the importance of structural aspects such as the modeling approach of endogenous technological change while paying less attention to an elaborate design of the considered fiscal stabilization policies. This paper uses an agent-based macroeconomic model that generates endogenous business cycles to emphasize the role of the policy design for long-term growth effects of stabilization policies. By comparing a demand-oriented consumption policy and two different investment subsidizing policies, it can be shown that these policies are successful in smoothing the business cycle but differ in terms of their effects on economic long-term growth. This highlights the importance of policy design for the analysis of long-term effects of stabilization policies.

Keywords

Stabilization PolicyLong-Term GrowthBusiness CycleAgent-Based Macroeconomics
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 4 , June 2021 , pp. 924 - 969
Copyright
© Cambridge University Press 2019

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Footnotes

I am grateful for helpful comments and suggestions by two anonymous referees, Herbert Dawid, Eliana Lauretta, Michael Neugart, Andre R. Neveu, and Anna Zaharieva and by participants of the following workshops, conferences, and research seminars: Computing in Economics and Finance 2015, the 20th Annual Workshop on the Economic Science with Heterogeneous Interacting Agents (WEHIA), the NYC Computational Economics & Complexity Workshop at the Eastern Economic Association Annual Meeting 2015, the GeComplexity Final Workshop 2016, the 2nd HenU/INFER Workshop on Applied Macroeconomics, and the GENED Annual Meeting 2013. I also thank my colleagues Sander van der Hoog and Simon Gemkow who co-developed and programmed parts of the computational model and the Center for Parallel Computing at the University of Paderborn for providing me with computational resources on the OCULUS high-performance computing cluster. Financial support of the German Science Foundation (Collaborative Research Center (SFB) 882 “From Heterogeneities to Inequalities”) and from the Horizon 2020 ISIGrowth Project (“Innovation-fuelled, Sustainable, Inclusive Growth”), under grant no. 649186, is gratefully acknowledged.

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