A Real Time Tax Smoothing Based Fiscal Policy Rule

Elena Loukoianova (), Shaun Vahey and Elizabeth Wakerly

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: In this paper we consider the real-time implementation of a fiscal policy rule based on tax smoothing (Barro (1979) and Bohn (1998)). We show that the tax smoothing approach, augmented by fiscal habit considerations, provides a surprisingly accurate description of US budget surplus movements. In order to investigate the robustness of the policy implications of the rule, we construct a real-time US fiscal data set, complementing the data documented by Croushore and Stark (2001). For each variable we record the different vintages, reflecting the remeasurements that occur over time. We demonstrate that the easily constructed rule provided a useful benchmark for policy analysis that is robust to real-time remeasurements.

Keywords: fiscal rules; tax smoothing; fiscal habits; real-time data (search for similar items in EconPapers)
JEL-codes: C82 E62 E66 (search for similar items in EconPapers)
Pages: 28
Date: 2002-11
New Economics Papers: this item is included in nep-mic
Note: EM
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Citations: View citations in EconPapers (3)

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Working Paper: A Real Time Tax Smoothing Based Fiscal Policy Rule (2003)
Working Paper: A Real Time Tax Smoothing Based Fiscal Policy Rule (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0235

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