Irish Fiscal Policy in Good Times and in Bad: Its Impact During Different Stages of the Economic Cycle

Recent international econometric analyses indicate that the impact of fiscal policy on output can vary during the economic cycle. In this paper, it is shown that a positive shock to government consumption will raise economic activity when the output gap is negative while the opposite holds when a positive output gap arises. Accordingly, the impact of fiscal policy at different stages of the economic cycle, should be borne in mind when formulating budgetary policy.