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An Estimated Fiscal Taylor Rule for the Postwar United States

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  • Christopher Reicher

Abstract

This paper documents the systematic response of postwar U.S. fiscal policy to fiscal imbalances and the business cycle using a multivariate Fiscal Taylor Rule. Adjustments to taxes and purchases both account for a large portion of the fiscal response to debt, while authorities seem reluctant to adjust transfers. As expected, taxes are highly procyclical; purchases are acyclical; and transfers are countercyclical. Neither pattern has changed much over time, except that adjustment happens more slowly after 1981 than before 1980. The role of adjustments to purchases in stabilizing the debt indicates that the recent discussion about spending reversals is highly relevant

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File URL: https://www.ifw-members.ifw-kiel.de/publications/an-estimated-fiscal-taylor-rule-for-the-postwar-united-states/an-estimated-fiscal-taylor-rule-for-the-postwar-united-states
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1705.

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Length: 7 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:kie:kieliw:1705

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Keywords: Spending reversals; Fiscal Taylor Rule; deficits; fiscal policy; taxes; spending; transfer payments;

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  1. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
  2. Corsetti, Giancarlo & Meier, André & Müller, Gernot, 2009. "Fiscal Stimulus with spending reversals," CEPR Discussion Papers 7302, C.E.P.R. Discussion Papers.
  3. Henning Bohn, . "Budget Balance Through Revenue or Spending Adjustments ? Some Historical Evidence for the United States (Reprint 013)," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 3-91, Wharton School Rodney L. White Center for Financial Research.
  4. Jordi Gali & Roberto Perotti, 2003. "Fiscal Policy and Monetary Integration in Europe," NBER Working Papers 9773, National Bureau of Economic Research, Inc.
  5. Bohn, Henning, 1992. "Endogenous Government Spending and Ricardian Equivalence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 102(412), pages 588-97, May.
  6. Bohn, H., 1991. "Budget Balance Through Revenue or Spending Adjustments? Some Historical Evidence for the United States," Weiss Center Working Papers, Wharton School - Weiss Center for International Financial Research 3-91, Wharton School - Weiss Center for International Financial Research.
  7. Alan J. Auerbach, 2002. "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 109-150.
  8. Giancarlo Corsetti & Keith Kuester & André Meier & Gernot J. Müller, 2010. "Debt Consolidation and Fiscal Stabilization of Deep Recessions," American Economic Review, American Economic Association, vol. 100(2), pages 41-45, May.
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Cited by:
  1. Reicher, Claire, 2014. "Systematic fiscal policy and macroeconomic performance: A critical overview of the literature," Economics Discussion Papers 2014-29, Kiel Institute for the World Economy.
  2. Martin Plödt & Claire Reicher, 2014. "Estimating simple fiscal policy reaction functions for the euro area countries," Kiel Working Papers 1899, Kiel Institute for the World Economy.
  3. Christopher Reicher, 2013. "A set of estimated fiscal rules for a cross-section of countries: Stabilization and consolidation through which instruments?," Kiel Working Papers 1850, Kiel Institute for the World Economy.
  4. Guido Baldi & Karsten Staehr, 2013. "The European debt crisis and fiscal reaction functions in Europe 2000–2012," Bank of Estonia Working Papers wp2013-5, Bank of Estonia, revised 24 Jul 2013.

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