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

Fiscal Foresight: Analytical Issues

Author Info

Listed author(s):
  • Todd B. Walker

    (Indiana University)

  • Shu-Chun Susan Yang

    (Academia Sinica)

  • Eric M. Leeper

    (Indiana University)

Abstract

Fiscal foresight---the phenomenon that legislative and implementation lags ensure that private agents know the tax rates they face in the future---is intrinsic to the tax policy process. Although acknowledged in empirical work, theoretical analysis of its implications is scant. This paper develops an analytical framework to study the econometric implications of fiscal foresight. A simple example shows that foresight produces equilibrium time series with a non-invertible moving average component, which misaligns the agents' and the econometrician's information sets in estimated VARs. Economically meaningful shocks to taxes, therefore, cannot be easily extracted from statistical innovations. Non-invertibility arises as a natural outgrowth of the fact that optimal decisions discount future tax obligations; non-invertibility, therefore, is likely to be endemic to the study of fiscal policy.

Download Info

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: https://economicdynamics.org/meetpapers/2008/paper_786.pdf
Download Restriction: no

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 786.

as
in new window

Length:
Date of creation: 2008
Handle: RePEc:red:sed008:786
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/society.htm
Email:


More information through EDIRC

Keywords:

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. Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez & Thomas J. Sargent & Mark W. Watson, 2007. "ABCs (and Ds) of Understanding VARs," American Economic Review, American Economic Association, vol. 97(3), pages 1021-1026, June.
  2. Wendy Edelberg & Martin Eichenbaum & Jonas D.M. Fisher, 1999. "Understanding the Effects of a Shock to Government Purchases," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 166-206, January.
  3. Myron S. Scholes & G. Peter Wilson & Mark A. Wolfson, 1992. "Firms' Responses to Anticipated Reductions in Tax Rates: The Tax Reform Act of 1986," NBER Working Papers 4171, National Bureau of Economic Research, Inc.
  4. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
  5. Alan J. Auerbach & Joel Slemrod, 1997. "The Economic Effects of the Tax Reform Act of 1986," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 589-632, June.
  6. Morten O. Ravn & Karel Mertens, 2008. "The Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks: Theory and Empirical Evidence," 2008 Meeting Papers 575, Society for Economic Dynamics.
  7. Matthew D. Shapiro & Christopher L. House, 2006. "Phased-In Tax Cuts and Economic Activity," American Economic Review, American Economic Association, vol. 96(5), pages 1835-1849, December.
  8. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  9. Martin Feldstein & Daniel Feenberg, 1996. "The Effect of Increased Tax Rates on Taxable Income and Economic Efficiency: A Preliminary Analysis of the 1993 Tax Rate Increases," NBER Chapters,in: Tax Policy and the Economy, Volume 10, pages 89-118 National Bureau of Economic Research, Inc.
  10. Garcia-Mila, Teresa, 1989. "Some empirical evidence on government purchase multipliers," Economics Letters, Elsevier, vol. 31(4), pages 375-380, December.
  11. 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.
  12. Burman, Leonard E. & Clausing, Kimberly A. & O'Hare, John F., 1994. "Tax Reform and Realizations of Capital Gains in 1986," National Tax Journal, National Tax Association, vol. 47(1), pages 1-18, March.
  13. Susan Yang, Shu-Chun, 2005. "Quantifying tax effects under policy foresight," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1557-1568, November.
Full references (including those not matched with items on IDEAS)

The CitEc project has not yet found citations to this item.

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

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:red:sed008:786. 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: (Christian Zimmermann)

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.