ON THE FISCAL-POLICY IMPLICATIONS OF LOW CAPITAL MOBILITY - SOME FURTHER EVIDENCE FROM CROSS-COUNTRY, TIME-SERIES DATA

In the study, the aim is to re-assess the Feldstein and Bachetta (FB) model, using cross-country time series data for the G-7 countries. The re-assessment involves two major innovations. First, the authors make a more efficient use of the data than attempted by both FB and Summers. Second, the authors adopt a varying-coefficients approach which is more general and deals properly with the problem of econometric endogeneity, and can be viewed as a more accurate statement of stochastic laws by which saving, investment and deficits might be related. That approach is also appropriate when there are outlying observations, arising due to substantial cross-country differences in macroeconomic experience. Section II reviews, briefly, the empirical literature. In section III, the authors present the model, the data set and the empirical results and discuss them in relation to previous findings. Section IV presents a summary of the major findings. -from Authors