Future Fiscal and Budgetary Shocks

Hian Hoon and Edmund Phelps

Macroeconomics Working Papers from East Asian Bureau of Economic Research

Abstract: We study the effects of future tax and budgetary shocks in a non-monetary and possibly non-Ricardian economy. An (unanticipated) temporary labor tax cut to be effective on a given future datea delayed debt bombcauses at once a drop in the (unit) value placed on the firms business asset, the customer, with the result that share prices, the hourly wage, and employment drop in tandem. This paradox of reduced activity through announcement of future stimulus does not hinge on an upward jump of long interest rates. A future tax-rate cut lacking a sunset provision has the same negative effects.

Keywords: Future shocks; business assets; Employment (search for similar items in EconPapers)
JEL-codes: E24 E43 E62 F41 (search for similar items in EconPapers)
Date: 2007-01
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Future fiscal and budgetary shocks (2008)
Working Paper: Future Fiscal and Budgetary Shocks (2004)
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