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Abstract

This paper looks at five different ways in which the effect of fiscal policy on aggregate demand in the short term can be empirically estimated, and asks two questions: First, given the assumption that fiscal policy has the same effect across countries, which of the five indicators is the empirically best measure of fiscal impact on demand? Second, is it reasonable to interpret fiscal policy indicators similarly across countries, or does the effect of fiscal policy on demand differ to a degree that makes this unreasonable? Running a panel regression of changes in aggregate demand on the five measures of fiscal policy in turn for OECD countries, the conclusion is that OECD's structural budget balance measure seems to be the more plausible measure of fiscal impact on demand. Moreover, testing the restriction that the five measures have identical parameters across OECD countries is rejected in five all cases.

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