American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article Front Matter i x http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.i 10.1257/pol.4.2.i American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article Measuring the Output Responses to Fiscal Policy Alan J.AuerbachU CA, Berkeley YuriyGorodnichenkoU CA, Berkeley 1 27 A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession. We provide three insights. First, using regime-switching models, we find large differences in the size of spending multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions. Second, we estimate multipliers for more disaggregate spending variables which behave differently relative to aggregate fiscal policy shocks, with military spending having the largest multiplier. Third, we show that controlling for predictable components of fiscal shocks tends to increase the size of the multipliers in recessions. (JEL C32, E62, H20, H62, H63) http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.1 10.1257/pol.4.2.1 http://www.aeaweb.org/aej/pol/data/2010-0164_data.zip American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article A Model-Based Evaluation of the Debate on the Size of the Tax Multiplier RyanChahrourColumbia U StephanieSchmitt-GroheColumbia U MartinUribeColumbia U 28 45 The SVAR and narrative approaches to estimating tax multipliers deliver significantly different results. The former yields multipliers of about 1 and the latter of about 3. The two approaches differ along two important dimensions: the identification scheme and the reduced-form transmission mechanism. This paper uses a DSGE-model to evaluate the hypothesis that the difference in multipliers is due to differences in transmission mechanisms. The main finding of the paper is that this hypothesis is rejected. Instead, the observed differences in estimated multipliers are due either to the models failing to identify the same tax shock, or to small-sample uncertainty. (JEL E13, E23, E32, E62, H20) http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.28 10.1257/pol.4.2.28 http://www.aeaweb.org/aej/pol/data/2010-0179_data.zip American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article Fiscal Policy Multipliers on Subnational Government Spending JeffreyClemensStanford Institute for Economic Policy Research, Stanford U StephenMiranLily Pond Capital Management LLC, New York 46 68 Balanced budget requirements lead to substantial pro-cyclicality in state government spending, with the stringency of a state's rules driving the pace at which it must adjust to shocks. We show that fiscal institutions can generate natural experiments in deficit-financed spending that are informative regarding fiscal stabilization policy. Alternative sources of variation in subnational fiscal policy often implicitly involve "windfall" financing, which precludes any effect of future debt or taxation on current consumption and investment. Consistent with a role for these "Ricardian" effects, our estimates are smaller than those in related studies, implying an on-impact multiplier below 1. (JEL C51, E32, E62, H72) http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.46 10.1257/pol.4.2.46 http://www.aeaweb.org/aej/pol/data/2010-0176_data.zip American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article Measuring Tax Multipliers: The Narrative Method in Fiscal VARs CarloFaveroU Bocconi FrancescoGiavazziIGIER, U Bocconi and MIT 69 94 This paper argues in favor of empirical models built by including in fiscal VAR models structural shocks identified via the narrative method. We first show that "narrative" shocks are orthogonal to the relevant information set a fiscal VAR. We then derive impulse responses to these shocks. The use of narrative shocks does not require the inversion of the moving-average representation of a VAR for the identification of the relevant shocks. Therefore, within this framework, fiscal multipliers can be identified and estimated even when, in the presence of "fiscal foresight," the MA representation of the VARs is not invertible. (JEL C32, E62, H20, H62, H63) http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.69 10.1257/pol.4.2.69 http://www.aeaweb.org/aej/pol/data/2010-0171_data.zip American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article Global Savings and Global Investment: The Transmission of Identified Fiscal Shocks JamesFeyrerDartmouth College JayShambaughGeorgetown U 95 114 This paper examines the effect of exogenous shocks to savings on world capital markets. Exogenous tax increases in the United States (from Romer and Romer 2010) are only partially offset by changes in domestic private savings, and only a small amount is absorbed by increased domestic investment (contra Feldstein and Horioka 1980). Almost half the change in taxes is transmitted abroad through a change in the US current account. Other countries experience decreases in current accounts and increases in investment in response to exogenous US tax increases. We cannot reject symmetric responses across countries with different currency regimes and levels of development. (JEL E21, E22, E23, E62, F32, F42) http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.95 10.1257/pol.4.2.95 http://www.aeaweb.org/aej/pol/data/2010-0181_data.zip American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article Quantitative Effects of Fiscal Foresight Eric M.LeeperIN U and Monash U Alexander W.RichterIN U Todd B.WalkerIN U 115 44 Legislative and implementation lags imply that substantial time evolves between when news arrives about fiscal changes and when the changes actually take place--time when households and firms can adjust their behavior. We identify two types of fiscal news--government spending using the Survey of Professional Forecasters and taxes using the municipal bond market. The main contribution of the paper is a mapping from reduced-form estimates of news into a DSGE framework. We find that news about fiscal policy is a time-varying process and show that ignoring the time variation can have important consequences in a conventional macroeconomic model. (JEL E12, E62, H20, H30, H62) http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.115 10.1257/pol.4.2.115 http://www.aeaweb.org/aej/pol/data/2010-0174_data.zip American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks KarelMertensCornell U Morten O.RavnU College London 145 81 We provide evidence on the dynamic effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes. Preannounced but not yet implemented tax cuts give rise to contractions in output, investment, and hours worked while real wages increase. There are no significant anticipation effects on aggregate consumption. Implemented tax cuts, regardless of their timing, have expansionary effects, on output, consumption, investment, hours worked, and real wages. Results are shown to be robust. Tax shocks are important impulses to the US business cycle and anticipation effects have been important during several business cycle episodes. (JEL E23, E32, E62, H20, H30) http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.145 10.1257/pol.4.2.145 http://www.aeaweb.org/aej/pol/data/2010-0152_data.zip American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article Fiscal Imbalances and Borrowing Costs: Evidence from State Investment Losses RobertNovy-MarxU Rochester Joshua D.RauhNorthwestern U 182 213 During the last quarter of 2008, financial losses in state pension funds varied from 12 percent to 68 percent of the revenue generated by the state government. We quantify a sovereign default channel in the state municipal market by examining how changes in bond spreads vary with state pension fund losses, controlling for credit ratings and various measures of the state's fiscal strength. Municipal bond spreads rose by 7-15 basis points for each 10 percent of state-generated revenue lost by states in the lower half of the credit quality spectrum. (JEL H71, H72, H74, H75) http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.182 10.1257/pol.4.2.182 http://www.aeaweb.org/aej/pol/data/2010-0177_data.zip http://www.aeaweb.org/aej/pol/app/2010-0177_app.pdf American Economic Association Nashville, TN 1945-7731 1945-774X American Economic Journal: Economic Policy http://www.aeaweb.org/aej-pol/ 4 2 May 2012 http://www.aeaweb.org/issue.php?journal=POL&volume=4&issue=2 Journal Article The Effects of Tax Shocks on Output: Not So Large, but Not Small Either RobertoPerottiIGIER, U Bocconi 214 37 I argue that, on theoretical grounds, the discretionary component of taxation should be allowed to have different effects than the automatic response of tax revenues to macroeconomic variables. Based on a novel dataset, I show two results. First, responses to a tax shock that allow for a distinction between the discretionary and the endogenous components of tax changes are about halfway between the large effects estimated by Romer and Romer (2010) and the smaller effects estimated, for instance, by Favero and Giavazzi (2012) or Blanchard and Perotti (2002). Second, there is almost no statistically significant evidence of anticipation effects. (JEL E23, E62, H22, H24, H25, K34) http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.214 10.1257/pol.4.2.214