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U.S. fiscal indicators, inflation and output

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  • Aksoy, Yunus
  • Melina, Giovanni

Abstract

In this paper we explore the information content of a large set of fiscal indicators for U.S. real output growth and inflation. We provide evidence that fluctuations in certain fiscal variables contain valuable information to predict fluctuations in output and prices. The distinction between federal and state-local fiscal indicators yields useful insights and helps define a new set of stylized facts for U.S. macroeconomic conditions. First, we find that variations in state-local indirect taxes as well as state government surplus or deficit help predict output growth. Next, the federal counterparts of these indicators contain valuable information for inflation. Finally, state-local expenditures help predict U.S. inflation. A set of formal and informal stability tests confirm that these relationships are stable. The fiscal indicators in questions are also among the ones that yield the best in-sample and out-of-sample performances.

Suggested Citation

  • Aksoy, Yunus & Melina, Giovanni, 2011. "U.S. fiscal indicators, inflation and output," The North American Journal of Economics and Finance, Elsevier, vol. 22(3), pages 221-236.
  • Handle: RePEc:eee:ecofin:v:22:y:2011:i:3:p:221-236
    DOI: 10.1016/j.najef.2011.02.001
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    References listed on IDEAS

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    1. Furceri, Davide, 2010. "Stabilization effects of social spending: Empirical evidence from a panel of OECD countries," The North American Journal of Economics and Finance, Elsevier, vol. 21(1), pages 34-48, March.
    2. Bahl, Roy & Martinez-Vazquez, Jorge, 1990. "Inflation and the Real Growth of State and Local Government Expenditures," American Economic Review, American Economic Association, vol. 80(2), pages 166-170, May.
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    Keywords

    Information value; State-local finances; Fiscal variables; Granger causality;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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