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Fiscal Policy, Past and Present

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  • Alan J. Auerbach

    (University of California, Berkeley)

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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Bibliographic Info

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

Volume (Year): 34 (2003)
Issue (Month): 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

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  1. Alan Auerbach, 2002. "Is There a Role for Discretionary Fiscal Policy?," NBER Working Papers 9306, National Bureau of Economic Research, Inc.
  2. Christina D. Romer & David H. Romer, 1994. "What Ends Recessions?," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1994, Volume 9, pages 13-80 National Bureau of Economic Research, Inc.
  3. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(3), pages 949-963, August.
  4. Auerbach, Alan J, 1989. "Tax Reform and Adjustment Costs: The Impact on Investment and Market Value," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 939-62, November.
  5. 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 - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 333-389.
  6. Alan J. Auerbach, 1982. "Taxation, Corporate Financial Policy and the Cost of Capital," NBER Working Papers 1026, National Bureau of Economic Research, Inc.
  7. Auerbach, A.J. & Hines, Jr.J.R., 1988. "Investment Tax Incentives And Frequent Tax Reforms," Papers, Princeton, Woodrow Wilson School - Public and International Affairs 135, Princeton, Woodrow Wilson School - Public and International Affairs.
  8. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier.
  9. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 1(1), pages 19-46, January.
  10. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2000. "Fiscal Policy, Profits, and Investment," Boston College Working Papers in Economics, Boston College Department of Economics 504, Boston College Department of Economics.
  11. Alan J. Auerbach, 1996. "Dynamic Revenue Estimation," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 10(1), pages 141-157, Winter.
  12. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(4), pages 1399-1436, November.
  13. Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3933, C.E.P.R. Discussion Papers.
  14. repec:hrv:faseco:3353756 is not listed on IDEAS
  15. Nigel Pain, 2002. "Fiscal Incentives, European Integration and the Location of Foreign Direct Investment," NIESR Discussion Papers, National Institute of Economic and Social Research 147, National Institute of Economic and Social Research.
  16. Auerbach, Alan J. & Hassett, Kevin, 1992. "Tax policy and business fixed investment in the United States," Journal of Public Economics, Elsevier, Elsevier, vol. 47(2), pages 141-170, March.
  17. Jagadeesh Gokhale & Kent Smetters, 2003. "Fiscal and generational imbalances: new budget measures for new budget priorities," Policy Discussion Papers, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, issue Dec.
  18. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
  19. Martin Feldstein, 2002. "Commentary : Is there a role for discretionary fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 151-162.
  20. Fumio Hayashi, 2002. "Commentary : Is there a role for discretionary fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 163-172.
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