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A Real Time Tax Smoothing Based Fiscal Policy Rule

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  • Loukoianova, E.
  • Vahey, S.P.
  • Elizabeth C. Wakerly

Abstract

In this paper we consider the real-time implementation of a fiscal policy rule based on tax smoothing (Barro (1979) and Bohn (1998)). We show that the tax smoothing approach, augmented by fiscal habit considerations, provides a surprisingly accurate description of US budget surplus movements. In order to investigate the robustness of the policy implications of the rule, we construct a real-time US fiscal data set, complementing the data documented by Croushore and Stark (2001). For each variable we record the different vintages, reflecting the remeasurements that occur over time. We demonstrate that the easily constructed rule provided a useful benchmark for policy analysis that is robust to real-time remeasurements.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/wp0235.pdf
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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0235.

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Length: 28
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:cam:camdae:0235

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Keywords: fiscal rules; tax smoothing; fiscal habits; real-time data;

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References

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Cited by:
  1. Jacopo Cimadomo, 2011. "Real-Time Data and Fiscal Policy Analysis: a Survey of the Literature," Working Papers 2011-20, CEPII research center.
  2. Jacopo Cimadomo, 2007. "Fiscal Policy in Real Time," Working Papers 2007-10, CEPII research center.

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