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Fiscal Foresight and Information Flows
... Second, the positive effect of expansionary fiscal policy on the federal deficit, output and prices are imposed only on lag 1 and 2. The reason is the following. On one hand, the effects of fiscal policy decisions on public expenditures or receipts are often delayed by several months as discussed in the fiscal foresight literature, see Leeper et al. (2013). On the other hand, the sign and the size of the impact effects of such decisions on output and prices are not obvious. ...
We use a dynamic factor model to provide a semi-structural representation for 101 quarterly US macroeconomic series. We find that (i) the US economy is well described by a number of structural shocks between two and five. Focusing on the four-shock specification, we identify, using sign restrictions, two policy shocks, monetary and fiscal, and two non-policy shocks, demand and supply. We obtain the following results. (ii) Both supply and demand shocks are important sources of fluctuations; supply prevails for GDP, while demand prevails for employment and inflation. (ii) Monetary and fiscal policy shocks have sizable effects on output and prices, with no evidence of crowding-out of private aggregate demand components; both monetary and fiscal authorities implement important systematic countercyclical policies reacting to demand shocks. (iii) Negative demand shocks have a large long-run positive effect on productivity, consistently with the Schumpeterian “cleansing” view of recessions.
In this paper I explore the effects of fiscal policy, in particular of both spending and taxes, on the Greek GDP, in the form of multipliers of GDP to a shock on the relevant fiscal instrument. A novel feature of this paper is that I try to estimate the effects of particular spending and tax components on GDP. I use Structural Vector Autoregression models and contemporaneous restrictions to identify fiscal shocks. A methodological difference with traditional SVARs is that I try to estimate the elasticities of the different taxes to GDP using the transitory components of the relevant time series. The results indicate that the macroeconomic effects of different fiscal instruments vary a lot, but spending on average has a higher multiplier than taxes, while personal income tax and fuel tax have the worst impact on the economy. JEL classifications: C32, E62, H2 Keywords: Fiscal Policy, Government Spending, Taxes, Macroeconomics, Structural Vector Autoregressions
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