This paper examines the output effects of fiscal policy based on two
approaches. The first approach employs SVARs. However, it differs from
previous studies in data sources, classification of government expenditures,
and treatment of data to allow for permanent effects of fiscal policy. The
second one is the first attempt in Korea to estimate the effects of a tax cut
using historical data on tax rates since 1970. Results show that the effects of
an increase in government expenditures are much bigger than those found in
previous studies. The effects of a tax cut estimated with tax rates are more
pronounced than in SVARs.