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A Real Time Tax Smoothing Based Fiscal Policy Rule

  • Wakerly, Elizabeth C

    (University of East Anglia)

  • Elena Loukoianova
  • Shaun P. Vahey

We consider the real-time implementation of a fiscal policy rule based on tax smoothing (Barro (1979), Bohn (1998)). We show that the tax smoothing approach, augmented by fiscal habit considerations, provides a surprisingly accurate description of US budget surplus movements. In order to investigate the robustness of the policy implications of the rule, we construct a real-time US fiscal data set, complementing the data documented by Croushore and Stark (2001). For each variable, we record the different vintages, reflecting the remeasurements that occur over time. We demonstrate that the rule provides a useful benchmark for policy analysis that is robust to real-time remeasurements.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 215.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:215
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