IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Dynamics of Fiscal Financing in the United States

  • Eric M. Leeper
  • Michael Plante
  • Nora Traum

Dynamic stochastic general equilibrium models that include policy rules for government spending, lump-sum transfers, and distortionary taxation on labor and capital income and on consumption expenditures are fit to U.S. data under a variety of specifications of fiscal policy rules. We obtain several results. First, the best fitting model allows a rich set of fiscal instruments to respond to stabilize debt. Second, responses of aggregate variables to fiscal policy shocks under rich fiscal rules can vary considerably from responses that allow only non-distortionary fiscal instruments to finance debt. Third, based on estimated policy rules, transfers, capital tax rates, and government spending have historically responded strongly to government debt, while labor taxes have responded more weakly. Fourth, all components of the intertemporal condition linking debt to expected discounted surpluses---transfers, spending, tax revenues, and discount factors---display instances where their expected movements are important in establishing equilibrium. Fifth, debt-financed fiscal shocks trigger long lasting dynamics so that short-run multipliers can differ markedly from long-run multipliers, even in their signs.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w15160.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15160.

as
in new window

Length:
Date of creation: Jul 2009
Publication status: published as Leeper, Eric M. & Plante, Michael & Traum, Nora, 2010. "Dynamics of fiscal financing in the United States," Journal of Econometrics, Elsevier, vol. 156(2), pages 304-321, June.
Handle: RePEc:nbr:nberwo:15160
Note: EFG
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
  2. 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.
  3. Forni, Lorenzo & Monteforte, Libero & Sessa, Luca, 2009. "The general equilibrium effects of fiscal policy: Estimates for the Euro area," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 559-585, April.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  5. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2005. "Online Appendix to "Firm-Specific Capital, Nominal Rigidities and the Business Cycle"," Technical Appendices 09-191, Review of Economic Dynamics.
  6. Altig, David E & Christiano, Lawrence J. & Eichenbaum, Martin & Lindé, Jesper, 2005. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," CEPR Discussion Papers 4858, C.E.P.R. Discussion Papers.
  7. Carlo Favero & Francesco Giavazzi, 2007. "Debt and the Effects of Fiscal Policy," NBER Working Papers 12822, National Bureau of Economic Research, Inc.
  8. John Bailey Jones, 1999. "Has Fiscal Policy Helped Stabilize the Postwar U.S. Economy?," Discussion Papers 99-03, University at Albany, SUNY, Department of Economics.
  9. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  10. John H. Cochrane, 1998. "A Frictionless View of U.S. Inflation," CRSP working papers 479, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  11. Eric M. Leeper & Christopher A. Sims, 1994. "Toward a Modern Macroeconomic Model Usable for Policy Analysis," NBER Working Papers 4761, National Bureau of Economic Research, Inc.
  12. Mountford, A.W. & Uhlig, H.F.H.V.S., 2002. "What are the Effects of Fiscal Policy Shocks?," Discussion Paper 2002-31, Tilburg University, Center for Economic Research.
  13. Schmitt-Grohé, Stephanie & Uribe, Martín, 2009. "What’s News in Business Cycles," CEPR Discussion Papers 7201, C.E.P.R. Discussion Papers.
  14. Anton Braun, R., 1994. "Tax disturbances and real economic activity in the postwar United States," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 441-462, June.
  15. Troy Davig & Eric M. Leeper, 2005. "Fluctuating Macro Policies and the Fiscal Theory," NBER Working Papers 11212, National Bureau of Economic Research, Inc.
  16. John F. Geweke, 1998. "Using simulation methods for Bayesian econometric models: inference, development, and communication," Staff Report 249, Federal Reserve Bank of Minneapolis.
  17. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
  18. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1998. "The Role of Investment-Specific Technological Change in the Business Cycle," RCER Working Papers 449, University of Rochester - Center for Economic Research (RCER).
  19. Woodford, Michael, 1995. "Price-level determinacy without control of a monetary aggregate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 1-46, December.
  20. John Geweke, 1999. "Using Simulation Methods for Bayesian Econometric Models," Computing in Economics and Finance 1999 832, Society for Computational Economics.
  21. Judd, Kenneth L, 1985. "Short-run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 298-319, April.
  22. Jordi Galí & J. David López-Salido & Javier Vallés, 2005. "Understanding the Effects of Government Spending on Consumption," NBER Working Papers 11578, National Bureau of Economic Research, Inc.
  23. Ratto Marco & Roeger Werner & Veld Jan, 2006. "Fiscal Policy in an estimated open-economy model for the EURO area," Computing in Economics and Finance 2006 43, Society for Computational Economics.
  24. N/A, 2009. "On the Recession," Local Economy, London South Bank University, vol. 24(3), pages 253-253, May.
  25. Eric M. Leeper & Shu-Chun Susan Yang, 2006. "Dynamic Scoring: Alternative Financing Schemes," Caepr Working Papers 2006-022, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  26. Troy Davig & Eric M. Leeper, 2009. "Monetary-Fiscal Policy Interactions and Fiscal Stimulus," NBER Working Papers 15133, National Bureau of Economic Research, Inc.
  27. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  28. Darrel Cohen & Glenn Follette, 2000. "The automatic fiscal stabilizers: quietly doing their thing," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 35-67.
  29. Fernandez-Villaverde, Jesus & Francisco Rubio-Ramirez, Juan, 2004. "Comparing dynamic equilibrium models to data: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 123(1), pages 153-187, November.
  30. Eric Leeper & Todd Walker & Susan Yang SHu-Chun, 2009. "Fiscal Foresight And Information Flows," Caepr Working Papers 2009-001, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  31. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April.
  32. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
  33. Sims, Christopher A., 1998. "Econometric implications of the government budget constraint," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 9-19.
  34. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  35. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  36. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1329-1368.
  37. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  38. Sungbae An & Frank Schorfheide, 2006. "Bayesian analysis of DSGE models," Working Papers 06-5, Federal Reserve Bank of Philadelphia.
  39. Dirk V Muir & Douglas Laxton & Dennis P Botman & Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 06/45, International Monetary Fund.
  40. Roberto Perotti, 2004. "Estimating the effects of fiscal policy in OECD countries," Working Papers 276, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  41. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models—Rejoinder," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 211-219.
  42. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 381-99.
  43. Douglas Laxton & Michael Kumhof, 2007. "A Party without a Hangover? On the Effects of U.S. Government Deficits," IMF Working Papers 07/202, International Monetary Fund.
  44. Weil, Philippe, 1987. "Love thy children : Reflections on the Barro debt neutrality theorem," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 377-391, May.
  45. Ravn, Morten O & Schmitt-Grohé, Stephanie & Uribe, Martín, 2007. "Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate," CEPR Discussion Papers 6541, C.E.P.R. Discussion Papers.
  46. Roland Straub & Günter Coenen, 2005. "Non-Ricardian Households and Fiscal Policy in an Estimated DSGE Model of the Euro Area," Computing in Economics and Finance 2005 102, Society for Computational Economics.
  47. Hess Chung & Eric Leeper, 2007. "What Has Financed Government Debt?," Caepr Working Papers 2007-015, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  48. Susan Yang, Shu-Chun, 2005. "Quantifying tax effects under policy foresight," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1557-1568, November.
  49. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15160. 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: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.