SUPPLY-SIDE EFFECTS OF FISCAL SHOCKS IN THE POLISH ECONOMY BASED ON THE REAL BUSINESS CYCLE MODEL

The article examines the supply-side impact of fiscal policy on fluctuations in economic trends in Poland. The analysis is based on the real business cycle model with indivisible labor developed by American economist Gary D. Hansen. This model was adapted to the conditions of the Polish economy and expanded to include assumptions about fiscal policy on the basis of data from the 1995-2009 period. According to the author, the model reflects the correlations between GDP and other variables. However, the negative correlation between government spending and consumption resulting from the model is not confirmed by actual data, Krajewski says. Simulations show that an increased share of capital expenditure in government spending has a positive impact on the economy because it leads to an increase in production, consumption, employment and the level of capital. The model also shows that even though a countercyclical fiscal policy reduces fluctuations in production, it leads to greater volatility of capital and consumption. Moreover, the results of the model show that if public consumption becomes a strong substitute of private consumption, an increase in government expenditure has a low supply-side impact on the level of production, the author concludes.