Fiscal policy dynamics in Australia and New Zealand

Abstract

This paper uses cointegration and error correction modelling to investigate how Governments across the Tasman have corrected fiscal imbalances. Australian Governments have used revenue and expenditure adjustments to correct long term fiscal imbalance. In the short term, however, taxes constrain spending in Australia. In New Zealand, expenditure adjustments are relied upon to correct long term fiscal imbalance. Thus, in neither country it could be said that spending priorities predominately drive decisions to raise taxes.