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A Real Time Tax Smoothing Based Fiscal Policy Rule

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  • Elena Loukoianova
  • Shaun P Vahey

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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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2003 with number 118.

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Date of creation: 01 Aug 2003
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Handle: RePEc:sce:scecf3:118

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

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Cited by:
  1. Jacopo Cimadomo, 2011. "Real-time data and fiscal policy analysis: a survey of the literature," Working Papers 11-25, Federal Reserve Bank of Philadelphia.
  2. Jacopo Cimadomo, 2012. "Fiscal Policy in Real Time," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 440-465, 06.

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