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American Economic Journal: Economic Policy: Vol. 4 No. 2 (May 2012)

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Quantitative Effects of Fiscal Foresight

Article Citation

Leeper, Eric M., Alexander W. Richter, and Todd B. Walker. 2012. "Quantitative Effects of Fiscal Foresight." American Economic Journal: Economic Policy, 4(2): 115-44.

DOI: 10.1257/pol.4.2.115

Abstract

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)

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Authors

Leeper, Eric M. (IN U and Monash U)
Richter, Alexander W. (IN U)
Walker, Todd B. (IN U)

JEL Classifications

E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian
E62: Fiscal Policy
H20: Taxation, Subsidies, and Revenue: General
H30: Fiscal Policies and Behavior of Economic Agents: General
H62: National Deficit; Surplus

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