On the behavior of fiscal policy with costly expectations
This paper extends the Talvi and Végh (2005) model on the behavior of fiscal policy, introducing agent-based issues. Like in Talvi and Végh (2005), the theoretical framework is à la Barro (1979), but rational expectations are costly. The agents can choose between two strategies in forming expectations: buying costly rational expectations or freely following the trend. Unlike Talvi and Végh (2005), I show that procyclicality of fiscal policy is not necessarily the government's optimal behavior.
Volume (Year): LV (2009)
Issue (Month): (January-December)
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- Alberto Alesina & Guido Tabellini, 2005.
"Why Is Fiscal Policy Often Procyclical?,"
297, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Alberto Alesina & Guido Tabellini, 2005. "Why is Fiscal Policy often Procyclical?," CESifo Working Paper Series 1556, CESifo Group Munich.
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- Alberto Alesina & Guido Tabellini, 2005. "Why is fiscal policy often procyclical?," Harvard Institute of Economic Research Working Papers 2090, Harvard - Institute of Economic Research.
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University of Chicago Press, vol. 87(5), pages 940-71, October.
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"Stylized Facts of Business Cycles in the G7 from a Real Business Cycles Perspective,"
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- Fiorito, Riccardo & Kollintzas, Tryphon, 1994. "Stylized facts of business cycles in the G7 from a real business cycles perspective," European Economic Review, Elsevier, vol. 38(2), pages 235-269, February.
- Huang, Chao-Hsi & Lin, Kenneth S., 1993. "Deficits, government expenditures, and tax smoothing in the United States: 1929-1988," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 317-339, June.
- Riccardo Fiorito, 1997. "Stylized Facts of Government Finance in the G-7," IMF Working Papers 97/142, International Monetary Fund.
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