Fiscal Stimulus with Spending Reversals
The short-run effects of fiscal policy depend not only on current tax and spending choices, but also on expectations about future policy adjustment. While general equilibrium models typically restrict medium-term adjustment to taxation, we highlight the importance of government spending dynamics. First, we provide time series evidence for the United States suggesting that an exogenous increase in government spending prompts a rise in public debt, followed over time by a reduction in spending below trend. Second, we show how expected spending reversals alter the short-run impact of fiscal policy in a new Keynesian model, bringing it closer in line with the evidence. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 94 (2012)
Issue (Month): 4 (November)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/|
|Order Information:||Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fabio Canova & Evi Pappa, 2007.
"Price Differentials in Monetary Unions: The Role of Fiscal Shocks,"
Royal Economic Society, vol. 117(520), pages 713-737, 04.
- Fabio Canova & Evi Pappa, 2003. "Price differentials in monetary unions: The role of fiscal shocks," Economics Working Papers 923, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2005.
- Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1329-1368.
- Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:94:y:2012:i:4:p:878-895. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites)
If references are entirely missing, you can add them using this form.