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Quantitative Effects of Fiscal Foresight

In: Fiscal Policy (Trans-Atlantic Public Economics Seminar, TAPES)

Author

Listed:
  • Eric M. Leeper
  • Alexander W. Richter
  • Todd B. Walker

Abstract

Changes in fiscal policy typically entail two kinds of lags: the legislative lag--between when legislation is proposed and when it is signed into law--and the implementation lag--from when a new fiscal law is enacted and when it takes effect. These lags imply that substantial time evolves between when news arrives about fiscal changes and when the changes actually take place--time when households and firms can adjust their behavior. We identify two types of fiscal news--government spending and changes in tax policy--and map the news processes into standard DSGE models. We identify news concerning taxes through the municipal bond market. If asset markets are efficient, the yield spread between tax-exempt municipal bonds and treasuries should be a function of the news concerning changes in tax policy. We identify news concerning government spending through the Survey of Professional Forecasters. We conclude that news concerning fiscal variables is a time-varying process that can have important qualitative and quantitative effects.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Eric M. Leeper & Alexander W. Richter & Todd B. Walker, 2010. "Quantitative Effects of Fiscal Foresight," NBER Chapters, in: Fiscal Policy (Trans-Atlantic Public Economics Seminar, TAPES), pages 115-144, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:13347
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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