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Uncovering the Effects of Government Spending through Tax Foresight

Author

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  • Ascari, Guido
  • Florio, Anna
  • Gobbi, Alessandro

Abstract

Employing two different effective measures of future tax expectations in a local projection analysis on post-war U.S. data reveals that the effects of an anticipated government spending shock depend solely on expectations about future taxes. In contrast, tax foresight does not affect the transmission of unanticipated shocks. When agents expect taxes to rise (fall), the economy response to an anticipated government spending shock aligns with a monetary (fiscal) regime. Hence, tax foresight is a sufficient statistic to identify the effects of anticipated government spending shocks. We argue that this is consistent with recent literature on monetary and fiscal policy interaction.

Suggested Citation

  • Ascari, Guido & Florio, Anna & Gobbi, Alessandro, 2024. "Uncovering the Effects of Government Spending through Tax Foresight," CEPR Discussion Papers 19698, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19698
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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