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Expectations and perceived causality in fiscal policy: an experimental analysis using real world data

  • Bernasconi, Michele

    ()

    (Università dell'Insubria)

  • Kirchkamp, Oliver

    ()

    (Sonderforschungsbereich 504)

  • Paruolo, Paolo

    ()

    (University of Insubria)

We generate observable expectations about fiscal variables through laboratory experiments using real world data from several European countries as stimuli. We estimate an econometric model of individual expectations for fiscal policy, which nests various theories of expectations--forming and encompasses both micro- and macro- economic lines of research on fiscal policy. Agents' expectations are found neither to be consistent with rational nor with purely adaptive expectations. Expectations follow an augmented-adaptive scheme, which embodies the `spend and tax hypothesis' on the relationship between taxes and expenditure to a greater extent than in real world data. We relate this findings to current research on the effects of fiscal policy. Methodological implications of the

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 03-03.

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Length: 52 pages
Date of creation: 12 Feb 2003
Date of revision:
Handle: RePEc:xrs:sfbmaa:03-03
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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  1. Andreas Beyer, 1998. "Modelling money demand in Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 57-76.
  2. Davidson, James, 1998. "Structural relations, cointegration and identification: some simple results and their application," Journal of Econometrics, Elsevier, vol. 87(1), pages 87-113, August.
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