Quantitative Effects of Fiscal Foresight
Changes in fiscal policy typically entail two kinds of lags: the legislative lag--between when legislation is proposed and when it is signed into law--and the implementation lag--from when a new fiscal law is enacted and when it takes effect. These lags imply that substantial time evolves between when news arrives about fiscal changes and when the changes actually take place--time when households and firms can adjust their behavior. We identify two types of fiscal news--government spending and changes in tax policy--and map the news processes into standard DSGE models. We identify news concerning taxes through the municipal bond market. If asset markets are efficient, the yield spread between tax-exempt municipal bonds and treasuries should be a function of the news concerning changes in tax policy. We identify news concerning government spending through the Survey of Professional Forecasters. We conclude that news concerning fiscal variables is a time-varying process that can have important qualitative and quantitative effects.
|Date of creation:||Sep 2010|
|Date of revision:|
|Publication status:||published as Eric M. Leeper & Alexander W. Richter & Todd B. Walker, 2012. "Quantitative Effects of Fiscal Foresight," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 115-44, May.|
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- Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2011. "Foresight and Information Flows," NBER Working Papers 16951, National Bureau of Economic Research, Inc.
- 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.
- Todd B. Walker & Eric M. Leeper & Shu-Chun S. Yang, 2012. "Fiscal Foresight and Information Flows," IMF Working Papers 12/153, International Monetary Fund.
- Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2009. "Fiscal Foresight and Information Flows," NBER Working Papers 14630, National Bureau of Economic Research, Inc.
- Leeper, Eric M. & Walker, Todd B. & Yang, Shu-Chun S., 2010.
"Government investment and fiscal stimulus,"
Journal of Monetary Economics,
Elsevier, vol. 57(8), pages 1000-1012, November.
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