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Fiscal anticipation and inequality: the role of the monetary-fiscal mix

Author

Listed:
  • Dhamija, Vedanta

    (Centre for Macroeconomics)

  • Fusari, Francesco

    (Newcastle University Business School)

  • Tara, Roshni

    (Centre for Macroeconomics)

Abstract

Fiscal policy is often anticipated before implementation, yet little is known about how fiscal foresight shapes inequality. We study the distributional effects of government spending shocks, distinguishing between anticipated (news) and unanticipated (surprise) components. We show that positive surprise shocks reduce U.S. consumption inequality, whereas positive news shocks increase it. A two-agent New Keynesian (TANK) model rationalises these findings and highlights the role of monetary-fiscal regimes: in a monetary-led regime, news and surprise shocks have opposite distributional effects similar to the empirical findings, while in a fiscally-led regime both reduce consumption inequality. Our results demonstrate that the distributional impact of fiscal policy depends critically on fiscal foresight and the prevailing policy regime.

Suggested Citation

  • Dhamija, Vedanta & Fusari, Francesco & Tara, Roshni, 2026. "Fiscal anticipation and inequality: the role of the monetary-fiscal mix," Newcastle Economics Discussion Papers 2026-01, Newcastle University Business School, Economics Subject Group.
    • Handle: RePEc:nwc:wpaper:2026-01
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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