List of Tables

1 Calibration, baseline . . . . . . . . . . . . . . . . . . . . . . . . . 2
2 Calibration, shocks . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3 Calibration, implicit . . . . . . . . . . . . . . . . . . . . . . . . . 4
4 Implicit Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5 Cross Correlations, domestic expenditures shocks . . . . . . . . . 6
6 Cross Correlations, domestic consumption tax rate shocks . . . . 6
7 Cross Correlations, domestic labour tax rate shocks . . . . . . . . 6
8 Cross Correlations, domestic capital tax rate shocks . . . . . . . 7
9 Cross Correlations, domestic technology shocks . . . . . . . . . . 7
10 Cross Correlations, domestic investment shocks . . . . . . . . . . 7
11 Cross Correlations, domestic risk premium shocks . . . . . . . . . 8
12 Cross Correlations, foreign technology shocks . . . . . . . . . . . 8
13 Cross Correlations, foreign expenditures shocks . . . . . . . . . . 8
14 Cross Correlations, monetary policy shocks . . . . . . . . . . . . 9
15 Fiscal Multipliers, benchmark model . . . . . . . . . . . . . . . . 9
16 Fiscal Multipliers, variable transfers . . . . . . . . . . . . . . . . 10
17 Fiscal Multipliers, balanced budget . . . . . . . . . . . . . . . . . 10
18 Utility Criterion . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
19 Volatility, domestic technology shocks . . . . . . . . . . . . . . . 12
20 Volatility, domestic investment shocks . . . . . . . . . . . . . . . 13
21 Volatility, domestic risk premium shocks . . . . . . . . . . . . . . 14
22 Volatility, foreign technology shocks . . . . . . . . . . . . . . . . 15
23 Volatility, foreign expenditures shocks . . . . . . . . . . . . . . . 16
24 Volatility, monetary policy shocks . . . . . . . . . . . . . . . . . . 17

1
LIST OF TABLES 2

Parameter Symbol Value

Home Bias θ 0.8908
Elasticity of Substitution Final Good Varieties µ 1.13
Elasticity of Substitution Intermediate Goods  10
Capital Share Factor Income α 0.3
Discount Rate ρ 0.01
Depreciation Rate δ 0.025
Habit Persistence h 0.551
Cost of debt ν 0.00384
Size (Belgium) n 0.039
AC parameter, Prices (Belgium) ψ 31.099
AC parameter, Prices (ROE) ψ∗ 31.099
UC parameter, Capital (Belgium) χ 5.714
UC parameter, Capital (ROE) χ∗ 5.714
AC parameter, Investment (Belgium) φ 6.048
AC parameter, Investment (ROE) φ∗ 6.048
Taylor Rule coefficient Output ζY 0.144
Taylor Rule coefficient CPI Inflation ζΠ 1.668
CRRA coefficient labour σl 1.265
CRRA coefficient consumption σc 1.613
Utility Weight Labour Term ηl 1
Utility Weight Public Expenditures ηg 0.4
Steady State Tax Rate Capital (Belgium) τ̄K 0.318
∗
Steady State Tax Rate Capital (ROE) τ̄K 0.31938
Steady State Tax Rate Consumption (Belgium) τ̄C 0.221
Steady State Tax Rate Consumption (ROE) τ̄C∗ 0.19442
Steady State Tax Rate Labour (Belgium) τ̄L 0.424
Steady State Tax Rate Labour (ROE) τ̄L∗ 0.38767
AR1 Persistence Taylor Rule ωT 0.928
AR1 Persistence Tax Rates (Belgium) ωτ 0.6
AR1 Persistence Tax Rates (ROE) ωτ∗ 0.6
AR1 Persistence Public Expenditures (Belgium) ωG 0.736
∗
AR1 Persistence Public Expenditures (ROE) ωG 0.736
Steady State GDP share Expenditures (Belgium) Ḡ/Ȳ 0.18
Steady State GDP share Expenditures (ROE) Ḡ∗ /Ȳ ∗ 0.18

Table 1: Calibration of the baseline parameters.

AC (adjustment costs); UC (utilization costs); CRRA (constant relative risk
aversion) GDP (gross domestic product); CPI (consumer price index); ROE
(rest of Europe).
LIST OF TABLES 3

Shock Symbol AR1 STDERR

Technology Shock (Belgium) ξA ωA = 0.822 0.01
∗ ∗
Technology Shock (ROE) ξA ωA = 0.822 0.01
Investment Shock (Belgium) ξI ωI = 0.914 0.01
Investment Shock (ROE) ξI∗ ωI∗ = 0.914 0.01
Finance Shock (Belgium) ξRP ωRP = 0.840 0.01
∗ ∗
Finance Shock (ROE) ξRP ωRP = 0.840 0.01
Expenditures Shock (Belgium) ξG ωG = 0.736 0.0556
∗ ∗
Expenditures Shock (ROE) ξG ωG = 0.736 0.01
w w
Interest Rate Shock (Eur) ξM ωM = 0.928 0.01
Consumption Tax Rate Shock ξτC ωτC = 0.600 0.0657
Labour Tax Rate Shock ξ τL ω τL = 0.600 0.0374
Capital Tax Rate Shock ξ τK ωτK = 0.600 0.1165

Table 2: Calibration of the parameters related to the shocks.

Note 1: Belgian Tax Rate and Expenditures shocks haven been calibrated
to represent a 1% of GDP deterioration of the government budget (increased
expenditures, or decreased revenue).
Note 2: Where shocks are embedded in an AR1 function (e.g. Taylor Rule,
Tax Rate Rule, ...) no additional inertia is inserted in the shock itself. The
AR1 coefficient of the representative function is displayed instead.
GDP (gross domestic product); ROE (rest of Europe); AR (auto regressive);
STDERR (standard deviation).
LIST OF TABLES 4

Implied Parameter Symbol Value

Labour Share Factor Income 1−α 0.7
Discount Factor β 0.9901
Steady State GDP share Investment (Belgium) ¯ Ȳ
I/ 0.1315
Steady State GDP share Investment (ROE) I¯∗ /Ȳ ∗ 0.1313
Steady State GDP share Consumption (Belgium) C̄/Ȳ 0.6885
Steady State GDP share Consumption (ROE) C̄ ∗ /Ȳ ∗ 0.6887
Steady State GDP share Labour Taxes (Belgium) - 0.2671
Steady State GDP share Labour Taxes (ROE) - 0.2442
Steady State GDP share Consumption Taxes (Belgium) - 0.1522
Steady State GDP share Consumption Taxes (ROE) - 0.1339
Steady State GDP share Capital Taxes (Belgium) - 0.0859
Steady State GDP share Capital Taxes (ROE) - 0.0862
Steady State GDP share Transfers (Belgium) - 0.3251
Steady State GDP share Transfers (ROE) - 0.2844

Table 3: Calibration of the parameters that are determined by the baseline parame-
ters.
GDP (gross domestic product); ROE (rest of Europe).
 LIST OF TABLES 5

Country GDP weight IT consumption IT labour income IT capital income

Germany 30.5290 % 19.8 % 38.6 % 24.5 %
Spain 10.2330 % 15.9 % 31.4 % 43.4 %
France 21.0030 % 19.5 % 41.4 % 39.8 %
Ireland 1.1280 % 25.6 % 25.7 % 18.6 %
Italy 20.3330 % 17.2 % 42.6 % 35.3 %
Luxembourg 0.2333 % 27.0 % 31.0 % -
The Netherlands 5.5850 % 26.8 % 34.2 % 15.9 %
Austria 3.0230 % 21.6 % 41.0 % 26.3 %
Portugal 2.3630 % 20.1 % 29.6 % 35.0 %
Finland 1.6690 % 26.5 % 41.3 % 26.4 %
Belgium 3.9000 % 22.100 % 42.400 % 31.800 %
Rest of Europe 96.0993 % 19.442 % 38.767 % 31.938 %

Table 4: Implicit Tax Rates.

source 1 (GDP weight): Gabriel, Henry & Ricardo; 2001; An area wide
model for the Euro Area.
source 2 (IT’s): European Comission; 2010; Taxation trends in the Euro-
pean Union, main results; Table E (consumption), Table F (labour), Table
G (capital), year 2007.
Luxemburg was dropped in the calculation if ROE IT capital income
GDP (gross domestic product); IT (indirect tax rate); ROE (rest of Europe).
LIST OF TABLES 6

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.1584 0.1771 0.9534 0.1954
Consumption 0.1584 1.0000 0.8504 -0.0480 0.9167
Investment 0.1771 0.8504 1.0000 0.0979 0.9733
Labour 0.9534 -0.0480 0.0979 1.0000 0.0872
Gov Assets 0.1954 0.9167 0.9733 0.0872 1.0000

Table 5: Cross Correlations following domestic expenditures shocks

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.8826 0.5329 0.9229 0.2258
Consumption 0.8826 1.0000 0.0740 0.7772 -0.2330
Investment 0.5329 0.0740 1.0000 0.5324 0.9090
Labour 0.9229 0.7722 0.5324 1.0000 0.1918
Gov Assets 0.2258 -0.2330 0.9090 0.1918 1.0000

Table 6: Cross Correlations following domestic consumption tax rate shocks

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.9670 0.9350 0.9117 -0.2666
Consumption 0.9670 1.0000 0.8565 0.9817 -0.4434
Investment 0.9350 0.8565 1.0000 0.8099 -0.1577
Labour 0.9117 0.9817 0.8099 1.0000 -0.5206
Gov Assets -0.2666 -0.4434 -0.1577 -0.5206 1.0000

Table 7: Cross Correlations following domestic labour tax rate shocks

LIST OF TABLES 7

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.9031 0.8520 0.6758 0.4103
Consumption 0.9031 1.0000 0.9103 0.8607 0.6764
Investment 0.8520 0.9103 1.0000 0.9305 0.7201
Labour 0.6758 0.8607 0.9305 1.0000 0.8814
Gov Assets 0.4103 0.6764 0.7201 0.8814 1.0000

Table 8: Cross Correlations following domestic capital tax rate shocks

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.9622 0.9488 -0.1061 0.6718
Consumption 0.9622 1.0000 0.8288 -0.2108 0.6284
Investment 0.9488 0.8288 1.0000 -0.0269 0.6468
Labour -0.1061 -0.2108 -0.0269 1.0000 0.4476
Gov Assets 0.6718 0.6284 0.6468 0.4476 1.0000

Table 9: Cross Correlations following domestic technology shocks

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.3461 0.8455 0.7558 0.8772
Consumption 0.3461 1.0000 -0.2082 -0.3445 0.7520
Investment 0.8455 -0.2082 1.0000 0.9832 0.4869
Labour -0.7558 -0.3445 0.9832 1.0000 0.3512
Gov Assets 0.8772 0.7520 0.4869 0.3512 1.0000

Table 10: Cross Correlations following domestic investment shocks

LIST OF TABLES 8

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.9812 0.9112 0.9652 0.9568
Consumption 0.9812 1.0000 0.8163 0.9519 0.9199
Investment 0.9112 0.8163 1.0000 0.8705 0.9296
Labour 0.9652 0.9519 0.8705 1.0000 0.9244
Gov Assets 0.9568 0.9199 0.9296 0.9244 1.0000

Table 11: Cross Correlations following domestic risk premium shocks

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.9866 0.9617 -0.5643 -0.2250
Consumption 0.9866 1.0000 0.9102 -0.6409 -0.3089
Investment 0.9617 0.9102 1.0000 -0.4990 -0.2117
Labour -0.5643 -0.6409 -0.4990 1.0000 0.7347
Gov Assets -0.2250 -0.3089 -0.2117 0.7347 1.0000

Table 12: Cross Correlations following foreign technology shocks

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.9837 0.9412 -0.6393 -0.7499
Consumption 0.9837 1.0000 0.8720 -0.7371 -0.8043
Investment 0.9412 0.8720 1.0000 -0.4900 -0.5972
Labour -0.6393 -0.7371 -0.4900 1.0000 0.7881
Gov Assets -0.7499 -0.8043 -0.5972 0.7881 1.0000

Table 13: Cross Correlations following foreign expenditures shocks

LIST OF TABLES 9

Variable Output Consumption Investment Labour Gov Assets

Output 1.0000 0.9864 0.9132 0.9645 0.9348
Consumption 0.9864 1.0000 0.8403 0.9265 0.8847
Investment 0.9132 0.8403 1.0000 0.9057 0.9657
Labour 0.9645 0.9265 0.9057 1.0000 0.9257
Gov Assets 0.9348 0.8847 0.9657 0.9257 1.0000

Table 14: Cross Correlations following monetary policy shocks

Horizon Y C L I
Increase in G 1 0.9243 -0.1235 0.9802 -0.2997
4 0.4669 -0.2048 0.4777 -0.6062
8 0.1865 -0.2147 0.1951 -0.7781
12 0.0603 -0.2047 0.0783 -0.8003
Reduction of τC 1 0.1920 0.2944 0.1995 -0.1476
4 0.1215 0.2331 0.1165 -0.3129
8 0.0140 0.1037 0.0073 -0.4072
12 -0.0304 0.0420 -0.0309 -0.4120
Reduction of τK 1 0.1587 0.0204 -0.1091 0.0039
4 0.0647 -0.0038 -0.0835 -0.0642
8 -0.0187 -0.0497 -0.1116 -0.1594
12 -0.0493 -0.0647 -0.1158 -0.2026
Reduction of τL 1 0.0615 0.1322 0.3165 0.1019
4 0.0970 0.1422 0.2612 0.1194
8 0.0277 0.0535 0.1090 0.0348
12 -0.0083 0.0110 0.0383 -0.0277

Table 15: Fiscal Multipliers in the benchmark model.

LIST OF TABLES 10

Horizon Y C L I
Increase in G 1 0.9273 -0.1264 0.9842 -0.2611
4 0.4763 -0.2092 0.4880 -0.5139
8 0.2087 -0.2136 0.2186 -0.6238
12 0.0984 -0.1911 0.1182 -0.6011
Reduction of τC 1 0.1947 0.2926 0.2029 -0.1177
4 0.1298 0.2311 0.1256 -0.2426
8 0.0342 0.1091 0.0293 -0.2931
12 0.0014 0.0578 0.0032 -0.2718
Reduction of τK 1 0.1621 0.0183 -0.1050 0.0396
4 0.0748 -0.0059 -0.0724 0.0198
8 0.0067 -0.0423 -0.0845 -0.0238
12 -0.0106 -0.0444 -0.0741 -0.0377
Reduction of τL 1 0.0654 0.1303 0.3212 0.1411
4 0.1088 0.1408 0.2746 0.2111
8 0.0567 0.0644 0.1411 0.1806
12 0.0354 0.0363 0.0857 0.1452

Table 16: Fiscal Multipliers in the benchmark model, variable transfers.

Horizon Y C L I
Increase in G 1 0.9363 -0.1275 0.9959 -0.1916
4 0.5105 -0.1943 0.5294 -0.3573
8 0.2770 -0.1672 0.2981 -0.3986
12 0.1772 -0.1326 0.2062 -0.3623
Reduction of τC 1 0.2032 0.2937 0.2146 -0.0662
4 0.1667 0.2572 0.1717 -0.1314
8 0.0931 0.1581 0.0992 -0.1487
12 0.0578 0.1055 0.0672 -0.1332
Reduction of τK 1 0.1725 0.0202 -0.0906 0.1010
4 0.1208 0.0279 -0.0148 0.1513
8 0.0791 0.0198 0.0018 0.1432
12 0.0567 0.0143 0.0025 0.1174
Reduction of τL 1 0.0778 0.1335 0.3387 0.2071
4 0.1660 0.1873 0.3468 0.3492
8 0.1393 0.1396 0.2400 0.3460
12 0.1060 0.1012 0.1666 0.2894

Table 17: Fiscal Multipliers in the benchmark model, balanced budget.

LIST OF TABLES 11

Policy Rule A A∗ RP G∗ I MP
Benchmark 1.000 1.000 1.000 1.000 1.000 1.000
G 1.156 1.083 1.040 1.030 1.055 0.895
G, balanced 1.014 1.040 0.770 1.025 0.655 0.600
C tax rate 0.928 0.980 0.830 0.992 0.798 0.822
C tax rate, balanced 0.848 0.950 0.629 0.983 0.534 0.568
L tax rate 0.880 0.992 0.770 1.012 0.624 0.735
L tax rate, balanced 0.847 0.970 0.631 1.004 0.459 0.530
K tax rate 0.965 0.996 0.901 1.008 0.624 0.847
K tax rate, balanced 0.888 0.972 0.668 1.001 0.436 0.583
All instruments 0.957 1.003 0.860 1.006 0.725 0.814
All instruments, balanced 0.883 0.976 0.659 0.999 0.495 0.565
LC tax rate 0.898 0.984 0.794 1.001 0.702 0.776
LC tax rate, balanced 0.845 0.959 0.628 0.993 0.493 0.548
LC tax rate (a) 0.866 0.941 0.743 0.963 0.634 0.690
LC tax rate (a), balanced 0.823 0.922 0.598 0.961 0.445 0.499
LC tax rate (b) 0.896 0.948 0.746 0.969 0.509 0.689
LC tax rate (b), balanced 0.836 0.927 0.599 0.966 0.315 0.497
LC tax rate (c) 0.867 0.994 0.702 1.014 0.716 0.698
LC tax rate (c), balanced 0.830 0.972 0.590 0.998 0.521 0.500
LC tax rate (d) 0.834 0.917 0.640 0.933 0.560 0.581
LC tax rate (d), balanced 0.801 0.899 0.548 0.930 0.390 0.438

Table 18: Utility Criterion as fraction of benchmark criterion.

Balanced: balanced budget
Above horizontal line: 1% change in GDP leads to a 1% deterioration of
the government’s budget equaly spread over indicated instruments
Below horizontal line: equal intensity of reaction to output + aditional
measures under the form of (a),(b) or (c).
(a) additional targetting of labour and consumption;
(b) additional targetting of labour, consumption and investment;
(c) additional targetting of consumption;
(d) double the intensity of specification (a).
LIST OF TABLES 12

Policy Rule Consumption Labour Expenditures Output

Benchmark 0.3193 0.3154 0.0048 0.3754
G 0.5303 0.3117 0.3148 0.3449
G, balanced 0.3119 0.3107 0.2625 0.2964
C tax rate 0.2962 0.3124 0.0045 0.3565
C tax rate, balanced 0.2706 0.3079 0.0037 0.3060
L tax rate 0.2758 0.3142 0.0040 0.3250
L tax rate, balanced 0.2549 0.3157 0.0034 0.2830
K tax rate 0.3085 0.3164 0.0040 0.3216
K tax rate, balanced 0.2847 0.3104 0.0035 0.2854
All instruments 0.3065 0.3131 0.0730 0.3348
All instruments, balanced 0.2810 0.3107 0.0618 0.2923
LC tax rate 0.2852 0.3124 0.0042 0.3375
LC tax rate, balanced 0.2646 0.3114 0.0036 0.2940
LC tax rate (a) 0.2963 0.3057 0.0041 0.3268
LC tax rate (a), balanced 0.2780 0.3035 0.0035 0.2899
LC tax rate (b) 0.2934 0.3059 0.0041 0.3279
LC tax rate (b), balanced 0.2722 0.3043 0.0035 0.2862
LC tax rate (c) 0.2656 0.3167 0.0041 0.3238
LC tax rate (c), balanced 0.2428 0.3212 0.0033 0.2719

Table 19: Volatility following a domestic technology shocks.

Balanced: balanced budget
Above horizontal line: 1% change in GDP leads to a 1% deterioration of
the government’s budget equaly spread over indicated instruments
Below horizontal line: equal intensity of reaction to output + aditional
measures under the form of (a),(b) or (c).
(a) additional targetting of labour and consumption;
(b) additional targetting of labour, consumption and investment;
(c) additional targetting of consumption.
LIST OF TABLES 13

Policy Rule Consumption Labour Expenditures Output

Benchmark 0.0916 0.0738 0.0018 0.1412
G 0.0943 0.0634 0.1175 0.1240
G, balanced 0.0708 0.0565 0.0927 0.0980
C tax rate 0.0809 0.0680 0.0017 0.1290
C tax rate, balanced 0.0650 0.0584 0.0013 0.1018
L tax rate 0.0743 0.0586 0.0015 0.1148
L tax rate, balanced 0.0621 0.0534 0.0012 0.0930
K tax rate 0.0729 0.0632 0.0014 0.1090
K tax rate, balanced 0.0587 0.0548 0.0012 0.0898
All instruments 0.0797 0.0630 0.0269 0.1187
All instruments, balanced 0.0635 0.0555 0.0216 0.0954
LC tax rate 0.0774 0.0629 0.0016 0.1216
LC tax rate, balanced 0.0635 0.0557 0.0013 0.0972
LC tax rate (a) 0.0753 0.0566 0.0015 0.1167
LC tax rate (a), balanced 0.0627 0.0499 0.0012 0.0930
LC tax rate (b) 0.0660 0.0527 0.0013 0.0991
LC tax rate (b), balanced 0.0521 0.0413 0.0009 0.0721
LC tax rate (c) 0.0733 0.0680 0.0016 0.1235
LC tax rate (c), balanced 0.0589 0.0634 0.0013 0.0996

Table 20: Volatility following domestic investment shocks.

Balanced: balanced budget
Above horizontal line: 1% change in GDP leads to a 1% deterioration of
the government’s budget equaly spread over indicated instruments
Below horizontal line: equal intensity of reaction to output + aditional
measures under the form of (a),(b) or (c).
(a) additional targetting of labour and consumption;
(b) additional targetting of labour, consumption and investment;
(c) additional targetting of consumption.
LIST OF TABLES 14

Policy Rule Consumption Labour Expenditures Output

Benchmark 0.6047 0.3024 0.0077 0.6715
G 0.6214 0.2246 0.4853 0.6020
G, balanced 0.5429 0.1747 0.3836 0.5064
C tax rate 0.5655 0.2425 0.0069 0.6217
C tax rate, balanced 0.5051 0.1779 0.0055 0.5207
L tax rate 0.5610 0.1945 0.0064 0.5876
L tax rate, balanced 0.5034 0.1827 0.0052 0.5001
K tax rate 0.5934 0.2469 0.0067 0.6014
K tax rate, balanced 0.5246 0.1771 0.0053 0.5088
All instruments 0.5840 0.2249 0.1161 0.6025
All instruments, balanced 0.5183 0.1761 0.0923 0.5088
LC tax rate 0.5626 0.2153 0.0067 0.6036
LC tax rate, balanced 0.5040 0.1780 0.0053 0.5100
LC tax rate (a) 0.5466 0.2023 0.0066 0.5942
LC tax rate (a), balanced 0.4918 0.1731 0.0052 0.5016
LC tax rate (b) 0.5495 0.2021 0.0064 0.5791
LC tax rate (b), balanced 0.4935 0.1738 0.0050 0.4884
LC tax rate (c) 0.5358 0.1840 0.0064 0.5792
LC tax rate (c), balanced 0.4818 0.1874 0.0049 0.4840

Table 21: Volatility following domestic risk premium shocks.

Balanced: balanced budget
Above horizontal line: 1% change in GDP leads to a 1% deterioration of
the government’s budget equaly spread over indicated instruments
Below horizontal line: equal intensity of reaction to output + aditional
measures under the form of (a),(b) or (c).
(a) additional targetting of labour and consumption;
(b) additional targetting of labour, consumption and investment;
(c) additional targetting of consumption.
LIST OF TABLES 15

Policy Rule Consumption Labour Expenditures Output

Benchmark 0.0339 0.0551 0.0004 0.0332
G 0.0375 0.0553 0.0247 0.0322
G, balanced 0.0376 0.0541 0.0260 0.0315
C tax rate 0.0333 0.0549 0.0004 0.0332
C tax rate, balanced 0.0339 0.0537 0.0004 0.0325
L tax rate 0.0316 0.0562 0.0004 0.0306
L tax rate, balanced 0.0328 0.0550 0.0003 0.0305
K tax rate 0.0341 0.0553 0.0003 0.0300
K tax rate, balanced 0.0351 0.0540 0.0003 0.0305
All instruments 0.0340 0.0554 0.0064 0.0314
All instruments, balanced 0.0348 0.0542 0.0061 0.0312
LC tax rate 0.0323 0.0555 0.0004 0.0318
LC tax rate, balanced 0.0333 0.0543 0.0004 0.0314
LC tax rate (a) 0.0342 0.0530 0.0004 0.0341
LC tax rate (a), balanced 0.0353 0.0519 0.0004 0.0338
LC tax rate (b) 0.0344 0.0533 0.0004 0.0324
LC tax rate (b), balanced 0.0353 0.0522 0.0004 0.0324
LC tax rate (c) 0.0304 0.0568 0.0004 0.0304
LC tax rate (c), balanced 0.0310 0.0559 0.0003 0.0291

Table 22: Volatility following foreign technology shocks.

Balanced: balanced budget
Above horizontal line: 1% change in GDP leads to a 1% deterioration of
the government’s budget equaly spread over indicated instruments
Below horizontal line: equal intensity of reaction to output + aditional
measures under the form of (a),(b) or (c).
(a) additional targetting of labour and consumption;
(b) additional targetting of labour, consumption and investment;
(c) additional targetting of consumption.
LIST OF TABLES 16

Policy Rule Consumption Labour Expenditures Output

Benchmark 0.0053 0.0102 0.0000 0.0048
G 0.0054 0.0102 0.0035 0.0047
G, balanced 0.0057 0.0100 0.0036 0.0049
C tax rate 0.0051 0.0102 0.0000 0.0048
C tax rate, balanced 0.0054 0.0100 0.0001 0.0051
L tax rate 0.0051 0.0104 0.0000 0.0046
L tax rate, balanced 0.0054 0.0102 0.0000 0.0049
K tax rate 0.0052 0.0103 0.0000 0.0047
K tax rate, balanced 0.0056 0.0101 0.0001 0.0050
All instruments 0.0052 0.0103 0.0008 0.0047
All instruments, balanced 0.0055 0.0101 0.0009 0.0050
LC tax rate 0.0051 0.0103 0.0000 0.0047
LC tax rate, balanced 0.0054 0.0101 0.0001 0.0050
LC tax rate (a) 0.0053 0.0100 0.0001 0.0050
LC tax rate (a), balanced 0.0056 0.0098 0.0001 0.0053
LC tax rate (b) 0.0053 0.0100 0.0000 0.0049
LC tax rate (b), balanced 0.0056 0.0098 0.0001 0.0052
LC tax rate (c) 0.0049 0.0104 0.0000 0.0045
LC tax rate (c), balanced 0.0052 0.0102 0.0000 0.0047

Table 23: Volatility following foreign expenditures shocks.

Balanced: balanced budget
Above horizontal line: 1% change in GDP leads to a 1% deterioration of
the government’s budget equaly spread over indicated instruments
Below horizontal line: equal intensity of reaction to output + aditional
measures under the form of (a),(b) or (c).
(a) additional targetting of labour and consumption;
(b) additional targetting of labour, consumption and investment;
(c) additional targetting of consumption.
LIST OF TABLES 17

Policy Rule Consumption Labour Expenditures Output

Benchmark 0.6781 0.7764 0.0084 0.7282
G 0.6718 0.6816 0.1842 0.6203
G, balanced 0.5592 0.5515 0.3368 0.4993
C tax rate 0.6113 0.7017 0.0069 0.6371
C tax rate, balanced 0.5290 0.5635 0.0048 0.5104
L tax rate 0.5958 0.6497 0.0064 0.6014
L tax rate, balanced 0.5229 0.5348 0.0046 0.4960
K tax rate 0.6328 0.7043 0.0066 0.6137
K tax rate, balanced 0.5407 0.5679 0.0047 0.5022
All instruments 0.6264 0.6837 0.1149 0.6172
All instruments, balanced 0.5373 0.5541 0.0811 0.5018
LC tax rate 0.6027 0.6748 0.0066 0.6181
LC tax rate, balanced 0.5257 0.5487 0.0047 0.5029
LC tax rate (a) 0.5753 0.6320 0.0063 0.5919
LC tax rate (a), balanced 0.5081 0.5181 0.0044 0.4842
LC tax rate (b) 0.5771 0.6284 0.0061 0.5831
LC tax rate (b), balanced 0.5080 0.5166 0.0043 0.4804
LC tax rate (c) 0.5752 0.6366 0.0063 0.5951
LC tax rate (c), balanced 0.5073 0.5197 0.0044 0.4843

Table 24: Volatility following monetary policy shocks.

Balanced: balanced budget
Above horizontal line: 1% change in GDP leads to a 1% deterioration of
the government’s budget equaly spread over indicated instruments
Below horizontal line: equal intensity of reaction to output + aditional
measures under the form of (a),(b) or (c).
(a) additional targetting of labour and consumption;
(b) additional targetting of labour, consumption and investment;
(c) additional targetting of consumption.