Did Fiscal Policy Makers Know What They Were Doing? Reassessing Fiscal Policy with Real Time Data

Andrew Hughes Hallett, Kerstin Bernoth () and John Lewis

No 6758, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Empirical fiscal policy reaction functions based on ex-post data cannot be said to describe fiscal policymakers intentions because they utilise data which did not exist when their decisions were made. A characterisation of what fiscal policy makers were trying to do requires real time data. This paper compares fiscal policy reaction functions for 14 European countries over the period 1995-2006 using both types of data. We exploit the information contained in real time and ex-post data and develop a new approach to estimating the automatic and discretionary fiscal policy responses to changing economic conditions. This avoids the uncertainties and inaccuracies associated with filtering the data in an attempt to estimate potential output or the structural budget. We find that the often commented on pro-cyclicality of discretionary policy only arises in the ex-post data; the real time data suggests that policymakers have tried to run counter-cyclical discretionary policy, but find it hard to do so due to data constraints. Compared to elsewhere in the literature, our model yields lower estimates of the automatic fiscal responses and stronger estimates of the discretionary responses to the output gap.

Keywords: Discretion; Fiscal policy; Real time data (search for similar items in EconPapers)
JEL-codes: E61 E62 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

Downloads: (external link)
https://cepr.org/publications/DP6758 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6758

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6758

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().