EconPapers    
Economics at your fingertips  
 

What are the Effects of Fiscal Policy Shocks?

Andrew Mountford () and Harald Uhlig ()

No 3338, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We investigate the effects of fiscal policy surprises for US data, using vector autoregressions. We overcome the difficulties that changes in fiscal policy may manifest themselves in variables other than fiscal variables first and that fiscal variables may respond ‘automatically’ to business cycle conditions. We do so by using sign restrictions on the impulse responses as method of identification, extending Uhlig (1997), and by imposing orthogonality to business cycle shocks and monetary policy shocks. We find that controlling for the business cycle shock is important, but controlling for the monetary policy shock is not, that government spending shocks crowd out both residential and non-residential investment but donot reduce consumption, that a deficit spending cut stimulates the economy for the first 4 quarters but has a low median multiplier of 0:5, and that a surprise tax increase has a contractionary effect on output, consumption and investment. Our results differ from the benchmarks of Ricardian equivalence and tax smoothing, and are more in line with theories that allow for intergenerational redistribution with limits to the compensating effects of bequests. The best fiscal policy for stimulating the economy appears to be a deficit-financed tax cut.

Keywords: agnostic identification; bayesian econometrics; fiscal policy; vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 E60 E62 H20 H50 H60 (search for similar items in EconPapers)
Date: 2002-04
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (101) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3338 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: What are the effects of fiscal policy shocks? (2009) Downloads
Working Paper: What are the Effects of Fiscal Policy Shocks? (2008) Downloads
Working Paper: What are the Effects of Fiscal Policy Shocks? (2005) Downloads
Working Paper: What are the Effects of Fiscal Policy Shocks? (2002) Downloads
Working Paper: What are the Effects of Fiscal Policy Shocks? (2002) 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:cpr:ceprdp:3338

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=3338

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2022-05-04
Handle: RePEc:cpr:ceprdp:3338