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Fiscal Taylor Rules in the Postwar United States

  • Christopher Reicher

Recent research and events have brought fiscal policy back into the spotlight. Fiscal Taylor rules and error correction models have represented two different ways of quantifying the feedbacks from fiscal and economic conditions to fiscal policy decisions. This paper synthesizes these two ideas, estimating a fiscal Taylor rule as a special case of an error correction model. Using quarterly postwar U.S. data, estimates of a fiscal Taylor rule find that the government sector has sought to stabilize its debt through adjustments to purchases and taxes, in that order, with very little stabilization coming through adjustments to transfer payments. Since 1981, the debt-stabilization motive has almost vanished, while the cyclical behavior of fiscal variables has not changed. This provides indirect evidence that fiscal policy may have become “non-Ricardian” in the US during recent decades

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1509.

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Length: 27 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:kie:kieliw:1509
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  1. Peter Claeys, 2006. "Policy mix and debt sustainability: evidence from fiscal policy rules," Empirica, Springer, vol. 33(2), pages 89-112, June.
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  4. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
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  7. Jordi GalÌ & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 533-572, October.
  8. John H. Cochrane, 2007. "Determinacy and Identification with Taylor Rules," NBER Working Papers 13409, National Bureau of Economic Research, Inc.
  9. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  10. Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
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  12. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  13. Christina D. Romer & David H. Romer, 2007. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," NBER Working Papers 13264, National Bureau of Economic Research, Inc.
  14. Roberto Perotti, 2004. "Estimating the effects of fiscal policy in OECD countries," Working Papers 276, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  15. Jordi Gali & Roberto Perotti, 2003. "Fiscal Policy and Monetary Integration in Europe," NBER Working Papers 9773, National Bureau of Economic Research, Inc.
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  18. Bohn, Henning, 2007. "Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1837-1847, October.
  19. Carlo Favero & Tommaso Monacelli, 2005. "Fiscal Policy Rules and Regime (In)Stability: Evidence from the U.S," Working Papers 282, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  20. repec:oup:qjecon:v:113:y:1998:i:3:p:949-963 is not listed on IDEAS
  21. repec:oup:qjecon:v:117:y:2002:i:4:p:1329-1368 is not listed on IDEAS
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  24. Perotti, Roberto, 2005. "Estimating the Effects of Fiscal Policy in OECD Countries," CEPR Discussion Papers 4842, C.E.P.R. Discussion Papers.
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