Fiscal Foresight And Information Flows
Fiscal foresight---the phenomenon that legislative and implementation lags ensure that private agents receive clear signals about the tax rates they face in the future---is intrinsic to the tax policy process. This paper develops an analytical framework to study the econometric implications of fiscal foresight. Simple theoretical examples show that foresight produces equilibrium time series with nonfundamental representations, which misalign the agents' and the econometrician's information sets. Economically meaningful shocks to taxes, therefore, cannot generally be extracted from statistical innovations in conventional ways. Econometric analyses that fail to align agents' and the econometrician's information sets can produce distorted inferences about the effects of tax policies. The paper documents the sensitivity of econometric inferences of tax effects to details about how tax information flows into the economy. We show that alternative assumptions about the information flows that give rise to fiscal foresight can reconcile the diverse empirical findings in the literature on anticipated tax changes.
|Date of creation:||Jan 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.iub.edu/~caeprEmail:
More information through EDIRC
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.:
- Nora Traum & Shu-Chun Yang, 2010.
"When Does Government Debt Crowd Out Investment?,"
Caepr Working Papers
2010-006, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
When requesting a correction, please mention this item's handle: RePEc:inu:caeprp:2009-001. 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: (Center for Applied Economics and Policy Research)
If references are entirely missing, you can add them using this form.