EconPapers    
Economics at your fingertips  
 

Fiscal policy and learning

Kaushik Mitra, George Evans () and Seppo Honkapohja ()

No 5/2012, Research Discussion Papers from Bank of Finland

Abstract: Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values under RE). Effectiveness of fiscal policy is demonstrated during times of economic stress like the recent Great Recession. Finally it is shown how learning can lead to dynamics empirically documented during episodes of "fiscal consolidations." JEL classification: E62, D84, E21, E43 Key words: Government Purchases, Expectations, Output Multiplier, Fiscal Consolidation, Taxation

JEL-codes: E62 D84 E21 E43 (search for similar items in EconPapers)
Date: 2012-01-26
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Published in Published as Fiscal Policy Multipliers in an RBC Model with Learning, Macroeconomic Dynamics, 2019 ; 23 ; 1.

Downloads: (external link)
https://helda.helsinki.fi/bof/bitstream/123456789/7535/1/169890.pdf (application/pdf)

Related works:
Working Paper: Fiscal Policy and Learning (2013) Downloads
Working Paper: Fiscal Policy and Learning (2012) Downloads
Working Paper: Fiscal Policy and Learning (2012) Downloads
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:bof:bofrdp:2012_005

Access Statistics for this paper

More papers in Research Discussion Papers from Bank of Finland Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland. Contact information at EDIRC.
Bibliographic data for series maintained by Minna Nyman ().

 
Page updated 2019-12-09
Handle: RePEc:bof:bofrdp:2012_005