New Advances in Fiscal Policy
Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)
- Chair: David Autor, Massachusetts Institute of Technology and NBER
Fiscal Policy and Households’ Inflation Expectations: Evidence from a Randomized Control Trial
AbstractRising government debt levels around the world are raising the specter that authorities might seek to inflate away the debt. In theoretical settings where fiscal policy “dominates” monetary policy, higher debt without offsetting changes in primary surpluses should lead households to anticipate this higher inflation. Are household inflation expectations sensitive to fiscal considerations in practice? We field a large randomized control trial on U.S. households to address this question by providing randomly chosen
subsets of households with information treatments about the fiscal outlook and then observing how they revise their expectations about future inflation as well as taxes and government spending. We find that information about the current debt or deficit levels has little impact on inflation expectations but that news about future debt leads them to anticipate higher inflation, both in the short run and long run. News about rising debt also induces households to anticipate rising spending and a higher rate of interest for
Do Analysts Act On Fiscal Spending?
AbstractWe document that actual fiscal distributions from the Federal government to firms are undetected in analyst forecasts of firm earnings. We first construct a transaction-level procurement contract database for all transactions using data from a publicly-accessible government website. Using a final sample consisting of 1239 public firms between 2008Q1 and 2022Q3, we find that a one standard deviation (SD) increase in the log transaction amount -- especially across firms -- significantly predicts an around 2.6%-3.9% higher chance of the actual earnings per share beating the median forecast, a 0.10 SD increase in earnings surprise, and an increase in daily returns of 10.36 basis points on earnings announcement day. Consistent with a missing information mechanism, the earnings surprise predictability significantly weakens for (a) firms with more forecasts, (b) firms whose analysts ask more questions about and show more interest in government contracts during conference calls, and (c) periods with active fiscal debates -- all situations in which analysts might have access to better information about government contracts. Finally, a long-short portfolio based on firms’ government contract transaction amounts earns 87 (35) basis points per month among small (all) firms; cash flow information about public procurement from small firms should be less known to the market, which explains their current under-pricing.
- E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- H3 - Fiscal Policies and Behavior of Economic Agents