Fiscal anticipation and inequality: the role of the monetary-fiscal mix

Vedanta Dhamija (), Francesco Fusari and Roshni Tara ()
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Vedanta Dhamija: Centre for Macroeconomics
Roshni Tara: Centre for Macroeconomics

No 2026-01, Newcastle Economics Discussion Papers from Newcastle University Business School, Economics Subject Group

Abstract: Fiscal policy is often anticipated before implementation, yet little is known about how fiscal foresight shapes inequality. We study the distributional effects of government spending shocks, distinguishing between anticipated (news) and unanticipated (surprise) components. We show that positive surprise shocks reduce U.S. consumption inequality, whereas positive news shocks increase it. A two-agent New Keynesian (TANK) model rationalises these findings and highlights the role of monetary-fiscal regimes: in a monetary-led regime, news and surprise shocks have opposite distributional effects similar to the empirical findings, while in a fiscally-led regime both reduce consumption inequality. Our results demonstrate that the distributional impact of fiscal policy depends critically on fiscal foresight and the prevailing policy regime.

Keywords: consumption inequality; fiscal policy; news shocks; monetary-fiscal interaction; TANK model (search for similar items in EconPapers)
JEL-codes: C32 E21 E61 E62 E63 (search for similar items in EconPapers)
Date: 2026-10
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:nwc:wpaper:2026-01

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