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Fiscal Policy, Past and Present

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Author Info
Alan J. Auerbach (University of California, Berkeley)

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Abstract

This paper begins by reviewing the current U.S. fiscal situation and the causes of its recent deterioration. As a guide to possible policy actions, it estimates past responses of revenue and expenditure both at the federal and at the state and local level. Federal fiscal policy is found to be responsive to both economic and fiscal conditions, and this responsiveness may have grown over time. For states, economic conditions are less important, but responses to budget gaps are swifter. Given current conditions, equations for federal revenue and expenditure predict tax cuts and expenditure increases, but of a considerably smaller magnitude than President Bush initially proposed. However, current circumstances are difficult to evaluate because of the enormous implicit entitlements liabilities, which are much more significant today than in the past. This difficulty is but one of the problems facing policy prediction and evaluation.

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Publisher Info
Article provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.

Volume (Year): 34 (2003)
Issue (Month): 2003-1 ()
Pages: 75-138
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Handle: RePEc:bin:bpeajo:v:34:y:2003:i:2003-1:p:75-138

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Keywords: macroeconomics; Fiscal Policy; Past fiscal policy; present fiscal policy;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jordi GalÌ & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR, CES, MSH, vol. 18(37), pages 533-572, October. [Downloadable!] (restricted)
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  2. Roberto Cardarelli & James Sefton & Laurence J. Kotlikoff, 1999. "Generational Accounting in the UK," NIESR Discussion Papers 147, National Institute of Economic and Social Research. [Downloadable!]
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  3. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2000. "Fiscal Policy, Profits, and Investment," Boston College Working Papers in Economics 504, Boston College Department of Economics. [Downloadable!]
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  4. Auerbach, Alan J. & Hassett, Kevin, 1992. "Tax policy and business fixed investment in the United States," Journal of Public Economics, Elsevier, vol. 47(2), pages 141-170, March. [Downloadable!] (restricted)
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  5. Auerbach, Alan J & Hines, James R, Jr, 1988. "Investment Tax Incentives and Frequent Tax Reforms," American Economic Review, American Economic Association, vol. 78(2), pages 211-16, May. [Downloadable!] (restricted)
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  6. Christina D. Romer & David H. Romer, 1994. "What Ends Recessions?," NBER Working Papers 4765, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    • Christina D. Romer & David H. Romer, 1994. "What Ends Recessions?," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 13-80 National Bureau of Economic Research, Inc. [Downloadable!]
  7. Alan Auerbach, 2002. "Is There a Role for Discretionary Fiscal Policy?," NBER Working Papers 9306, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1983-2), pages 451-514. [Downloadable!]
  9. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August. [Downloadable!] (restricted)
  10. Jagadeesh Gokhale & Kent Smetters, 2003. "Fiscal and generational imbalances: new budget measures for new budget priorities," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Dec. [Downloadable!]
  11. Auerbach, Alan J, 1996. "Dynamic Revenue Estimation," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 141-57, Winter. [Downloadable!] (restricted)
  12. Alan J. Auerbach, 1990. "Tax Reform and Adjustment Costs: The Impact on Investment and Market Value," NBER Working Papers 2103, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November. [Downloadable!] (restricted)
  14. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "Should the European Central Bank and the Federal Reserve be concerned about fiscal policy?," Proceedings, Federal Reserve Bank of Kansas City, pages 333-389. [Downloadable!]
  15. Fumio Hayashi, 2002. "Commentary : Is there a role for discretionary fiscal policy?," Proceedings, Federal Reserve Bank of Kansas City, pages 163-172. [Downloadable!]
  16. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier. [Downloadable!] (restricted)
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  17. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-40, September. [Downloadable!] (restricted)
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  18. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
  19. Martin Feldstein, 2002. "Commentary : Is there a role for discretionary fiscal policy?," Proceedings, Federal Reserve Bank of Kansas City, pages 151-162. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Darrel Cohen & Glenn Follette, 2003. "Forecasting exogenous fiscal variables in the United States," Finance and Economics Discussion Series 2003-59, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Christina D. Romer & David H. Romer, 2007. "Do Tax Cuts Starve the Beast: The Effect of Tax Changes on Government Spending," NBER Working Papers 13548, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Ioana Moldovan, 2008. "Countercyclical Fiscal Policy and Cyclical Factor Utilization," Working Papers 2008_15, Department of Economics, University of Glasgow. [Downloadable!]
  4. Torben Andersen, 2005. "Is there a Role for an Active Fiscal Stabilization Policy?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Doris Prammer, 2004. "Expansionary Fiscal Consolidations? An Appraisal of the Literature on Non-Keynesian Effects of Fiscal Policy and a Case Study for Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 35-52, October. [Downloadable!]
  6. Petr Hedbávný & Ondřej Schneider & Jan Zápal, 2004. "Does the Enlarged European Union Need a Better Fiscal Pact?," Working Papers IES 55, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004. [Downloadable!]
  7. David B. Gordon & Eric M. Leeper, 2005. "Are Countercyclical Fiscal Policies Counterproductive?," NBER Working Papers 11869, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Alan J. Auerbach, 2008. "Federal Budget Rules: The US Experience," NBER Working Papers 14288, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Alan J. Auerbach & William G. Gale, 2009. "Activist Fiscal Policy to Stabilize Economic Activity," NBER Working Papers 15407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Marc D. Hayford, 2005. "Fiscal policy and national saving," Applied Economics, Taylor and Francis Journals, vol. 37(9), pages 981-992, May. [Downloadable!] (restricted)
  11. Rainer Klump & Peter McAdam & Alpo Willman, 2004. "Factor Substitution and Factor Augmenting Technical Progress in the US: A Normalized Supply-Side System Approach," DEGIT Conference Papers c009_030, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
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  12. Eric M. Engen & R. Glenn Hubbard, 2004. "Federal Government Debt and Interest Rates," NBER Working Papers 10681, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Alan Auerbach, 2009. "US Experience with Federal Budget Rules," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 7(1), pages 41-48, 04. [Downloadable!]
  14. Ioana Moldovan, 2007. "Countercyclical Taxes in a Monopolistically Competitive Environment," Working Papers 2007_42, Department of Economics, University of Glasgow. [Downloadable!]
  15. Alan J. Auerbach, 2009. "Implementing the New Fiscal Policy Activism," NBER Working Papers 14725, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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