Uncovering the Effects of Government Spending through Tax Foresight

Guido Ascari, Anna Florio and Alessandro Gobbi

No 19698, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Employing two different effective measures of future tax expectations in a local projection analysis on post-war U.S. data reveals that the effects of an anticipated government spending shock depend solely on expectations about future taxes. In contrast, tax foresight does not affect the transmission of unanticipated shocks. When agents expect taxes to rise (fall), the economy response to an anticipated government spending shock aligns with a monetary (fiscal) regime. Hence, tax foresight is a sufficient statistic to identify the effects of anticipated government spending shocks. We argue that this is consistent with recent literature on monetary and fiscal policy interaction.

Keywords: Government; spending (search for similar items in EconPapers)
JEL-codes: E52 E62 E63 (search for similar items in EconPapers)
Date: 2024-11
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