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Fiscal Policy and Uncertainty

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  • Auerbach, Alan J
  • Hassett, Kevin A

Abstract

Government fiscal aggregates are often manipulated over the course of the business cycle in order to provide counter-cyclical stimulus. Changes that are not discretionary--the so-called "built-in stabilizers"--also significantly vary over the business cycle, in a manner that is even more predictable than the periodic discretionary measures. Such measures introduce important bi-directional interactions between policy and uncertainty. On the one hand, activist policy may heighten the general level of uncertainty in the economy, by adding policy ambiguity to the more fundamental sources of uncertainty. On the other hand, the design of optimal policy itself depends crucially on levels of uncertainty concerning the state of the economy in the short and long run. In this paper we review recent work that explores the impact of uncertainty on optimal policy design, proceeding from the short to the long run. Copyright 2002 by Blackwell Publishers Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 5 (2002)
Issue (Month): 2 (Summer)
Pages: 229-49

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Handle: RePEc:bla:intfin:v:5:y:2002:i:2:p:229-49

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Cited by:
  1. Mathias Dolls & Clemens Fuest & Andreas Peichl, 2010. "Automatic Stabilizers and Economic Crisis: US vs. Europe," NBER Working Papers 16275, National Bureau of Economic Research, Inc.
  2. Giovanni Di Bartolomeo & Marco Manzo, 2010. "Fiscal Policy Under Balanced Budget And Indeterminacy: A New Keynesian Perspective," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(4), pages 455-472, 09.
  3. Giovanni Di Bartolomeo & Marco Manzo & Francesco Giuli, 2008. "Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness," Working Papers 0802, University of Crete, Department of Economics.
  4. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," Tax Policy and the Economy, University of Chicago Press, vol. 26(1), pages 125 - 164.
  5. Francois Gourio, 2007. "Putty-Clay Technology And Stock Market Volatility," Boston University - Department of Economics - Working Papers Series WP2007-005, Boston University - Department of Economics.
  6. Torben Andersen, 2006. "Increasing Longevity and Social Security Reforms," CESifo Working Paper Series 1789, CESifo Group Munich.
  7. repec:ese:emodwp:em2-10 is not listed on IDEAS
  8. Torben Andersen, 2005. "Social Security and Longevity," CESifo Working Paper Series 1577, CESifo Group Munich.
  9. Torben Andersen, 2014. "Intergenerational redistribution and risk sharing with changing longevity," Journal of Economics, Springer, vol. 111(1), pages 1-27, February.

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