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The Expectations view on fiscal policy - An experiment using real world data

Author

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  • Bernasconi, Michele

    (Università dell'Insubria)

  • Kirchkamp, Oliver

    (Sonderforschungsbereich 504)

Abstract

To understand the effect of fiscal policy on the private sector we have to comprehend how expectations about fiscal variables are formed. However, little is known about the way people form expectations about fiscal variables: no undercutting theory exists, not to say empirical evidence. The problem is that ``expectations are unobservable'' (Bertola and Drazen 1993). We generate observable expectations using a combination of laboratory experiments and real world data from several European countries. Based upon these observable expectations we develop a model of formation of expectations. We fit real world data and study the effect of fiscal policies. We show that we can study the relationship between private consumption and government consumption.

Suggested Citation

  • Bernasconi, Michele & Kirchkamp, Oliver, 2002. "The Expectations view on fiscal policy - An experiment using real world data," Sonderforschungsbereich 504 Publications 02-18, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:02-18
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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