More on the time-dependence of fiscal policy

Chris Reicher has a new paper (pdf) and the abstract is here:

This paper documents the systematic response of postwar U.S. fiscal policy to fiscal imbalances and the business cycle using a multivariate Fiscal Taylor Rule. Adjustments to taxes and purchases both account for a large portion of the fiscal response to debt, while authorities seem reluctant to adjust transfers. As expected, taxes are highly procyclical; purchases are acyclical; and transfers are countercyclical. Neither pattern has changed much over time, except that adjustment happens more slowly after 1981 than before 1980. The role of adjustments to purchases in stabilizing the debt indicates that the recent discussion about spending reversals is highly relevant.

The gated, published version is here.  Chris writes me in an email:

Germany uses a similar mix of spending restraint vs. tax increases as the United States in order to consolidate its fiscal position over time.  My 2012 article basically corroborates Bohn’s results using different techniques for the postwar period.  I have a set of unpublished estimates which indicates the same thing for Germany and a number of other countries–adjustments to real spending and taxes both account for large portions of fiscal authorities’ endogenous response to debt.

Chris points me to a further paper on the topic, forthcoming in ReStat.


Comments for this post are closed