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A Real Time Tax Smoothing Based Fiscal Policy Rule

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Author Info
Wakerly, Elizabeth C (University of East Anglia)
Elena Loukoianova
Shaun P. Vahey

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Abstract

We consider the real-time implementation of a fiscal policy rule based on tax smoothing (Barro (1979), 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 rule provides a useful benchmark for policy analysis that is robust to real-time remeasurements.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 215.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:215

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

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Find related papers by JEL classification:
C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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  4. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept. [Downloadable!] (restricted)
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  6. N. Gregory Mankiw & Matthew D. Shapiro, 1986. "News or Noise? An Analysis of GNP Revisions," NBER Working Papers 1939, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June. [Downloadable!] (restricted)
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  20. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December. [Downloadable!] (restricted)
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  22. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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  24. Glenn D. Rudebusch, 2002. "Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty," Economic Journal, Royal Economic Society, vol. 112(479), pages 402-432, April. [Downloadable!] (restricted)
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  25. 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)
  26. Matthew Canzoneri & Behzad Diba, 1999. "The Stability and Growth Pact: A Delicate Balance or an Albatross?," Empirica, Springer, vol. 26(3), pages 241-258, September. [Downloadable!] (restricted)
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  1. Jacopo Cimadomo, 2008. "Fiscal policy in real time," Working Paper Series 919, European Central Bank. [Downloadable!]
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