Quantitative Effects of Fiscal Foresight
نویسندگان
چکیده
Changes in fiscal policy typically entail two kinds of lags: the legislative lag— between when legislation is proposed and when it is signed into law—and the implementation lag—from when a new fiscal law is enacted and when it takes effect. These lags imply that substantial time evolves between when news arrives about fiscal changes and when the changes actually take place—time when households and firms can adjust their behavior. We identify two types of fiscal news—government spending and changes in tax policy. We identify news concerning taxes through the municipal bond market, and news concerning government spending through the Survey of Professional Forecasters. The main contribution of the paper is a mapping from reduced-form estimates of news into a DSGE framework. We argue that news about fiscal policy is a time-varying process. We demonstrate that the ignoring the time variation can have important consequences in a conventional macroeconomic model. We would like to thank the editor, Roberto Perotti, and two anonymous referees for helpful comments on a previous draft. We would also like to thank participants at the 2010 NBER TAPES Conference, especially our discussants Stephanie Schmitt-Grohé and Ethan Ilzetzki. Indiana University, Monash University, and NBER, [email protected] Indiana University, [email protected] Indiana University, [email protected]
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