Future fiscal and budgetary shocks

Future fiscal and budgetary shocks

We study here the effects of future tax and budgetary shocks on present levels of economic activity and real interest rates in a nonmonetary and possibly non-Ricardian economy. The paper first takes up an (unanticipated) temporary tax cut to be effective on a given future date—a delayed “debt bomb.” The sudden prospect of this future-dated shock causes at once a drop in the (unit) value placed ...

Fiscal shocks and their consequences

This paper investigates the response of hours worked and real wages to fiscal policy shocks in the U.S. during the post World War II era. We identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income, and a persistent rise in aggregate hours worked as well as declines in r...

Budgetary Institutions and Expenditure Outcomes Binding Governments to Fiscal Performance

Fiscal Rules and Discretion under Persistent Shocks

This paper studies the optimal level of discretion in policymaking. We consider a fiscal policy model where the government has time-inconsistent preferences with a present-bias towards public spending. The government chooses a fiscal rule to trade off its desire to commit to not overspend against its desire to have flexibility to react to privately observed shocks to the value of spending. We a...

Heterogeneous Consumers and Fiscal Policy Shocks

This paper studies stylized empirical facts regarding the e¤ects of unexpected changes in aggregate macroeconomic policies on consumers that are allowed to di¤er depending on their individual characteristics. In particular, we focus on …scal shocks due to their important e¤ects on consumers’welfare. We use data from the Consumption Expenditure Survey (CEX) to estimate impulse responses as well ...