Uncertainty and Fiscal Cliffs

Troy Davig and Andrew Foerster

Journal of Money, Credit and Banking, 2019, vol. 51, issue 7, 1857-1887

Abstract: Large pending fiscal policy changes, such as in the United States in 2012 or in Japan with consumption taxes, often generate considerable uncertainty. “Fiscal cliff” episodes have several features: an announced possible future change, a skewed set of possible outcomes, the possibility that implementation may not actually occur, and a known resolution date. This paper develops a model capturing these features and studies their impact. Fiscal cliff uncertainty shocks have immediate impact, with a magnitude that depends on the probability of implementation, which generates economic volatility. The possibility of fiscal cliffs lowers economic activity even in periods of relative certainty.

Date: 2019
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Citations: View citations in EconPapers (7)

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https://doi.org/10.1111/jmcb.12562

Related works:
Working Paper: Uncertainty and Fiscal Cliffs (2018)
Working Paper: Uncertainty and Fiscal Cliffs (2015)
Working Paper: Uncertainty and fiscal cliffs (2014)
Working Paper: Uncertainty and Fiscal Cliffs (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:51:y:2019:i:7:p:1857-1887

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