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Expectations and perceived causality in fiscal policy: an experimental analysis using real world data

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Author Info

  • Bernasconi Michele

    (Department of Economics, University of Insubria, Italy)

  • Kirchkamp Oliver

    ()
    (Universitat Mannheim)

  • Paruolo Paolo

    ()
    (Department of Economics, University of Insubria, Italy)

Abstract

We generate observable expectations about fiscal variables through laboratory experiments using real world data from several European countries as stimuli.We estimate an econometric model of individual expectations for fiscal policy, which nests various theories of expectations-forming and encompasses both micro- and macro- economic lines of research on fiscal policy. Agents' expectations are found neither to be consistent with rational nor with purely adaptive expectations. Expectations follow an augmented-adaptive scheme, which embodies the "spend and tax hypothesis" on the relationship between taxes and expenditure to a greater extent than in real world data. We relate this findings to current research on the effects of fiscal policy. Methodological implications of the present approach for experiments in macroeconomics are also discussed.

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File URL: http://eco.uninsubria.it/dipeco/Quaderni/files/QF2002_42.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0224.

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Length: 53 pages
Date of creation: Feb 2003
Date of revision:
Handle: RePEc:ins:quaeco:qf0224

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Keywords: Experiments; fiscal policy; expectations; causality; cointegration; panel data;

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References

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  1. Davidson, James, 1998. "Structural relations, cointegration and identification: some simple results and their application," Journal of Econometrics, Elsevier, vol. 87(1), pages 87-113, August.
  2. Andreas Beyer, 1998. "Modelling money demand in Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 57-76.
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Cited by:
  1. Roberto Ricciuti, 2003. "Bringing Macroeconomics into the Lab," Royal Holloway, University of London: Discussion Papers in Economics 03/9, Department of Economics, Royal Holloway University of London, revised Dec 2003.

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