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A Real Time Tax Smoothing Based Fiscal Policy Rule

  • Elena Loukoianova
  • Shaun P Vahey

In this paper we consider the real-time implementation of a fiscal policy rule based on tax smoothing (Barro (1979) and Bohn (1998)). We show that the tax smoothing approach, augmented by fiscal habit considerations, provides a surprisingly accurate description of US budget surplus movements. In order to investigate the robustness of the policy implications of the rule, we construct a real-time US fiscal data set, complementing the data documented by Croushore and Stark (2001). For each variable we record the different vintages, reflecting the remeasurements that occur over time. We demonstrate that the easily constructed rule provided a useful benchmark for policy analysis that is robust to real-time remeasurements.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2003 with number 118.

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Date of creation: 01 Aug 2003
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Handle: RePEc:sce:scecf3:118
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