Kiel Working Papers, Kiel Institute for World Economics
No 1509:
Fiscal Taylor Rules in the Postwar United States
Christopher Reicher
Abstract: Recent research and events have brought fiscal policy back
into the spotlight. Fiscal Taylor rules and error correction models have
represented two different ways of quantifying the feedbacks from fiscal and
economic conditions to fiscal policy decisions. This paper synthesizes
these two ideas, estimating a fiscal Taylor rule as a special case of an
error correction model. Using quarterly postwar U.S. data, estimates of a
fiscal Taylor rule find that the government sector has sought to stabilize
its debt through adjustments to purchases and taxes, in that order, with
very little stabilization coming through adjustments to transfer payments.
Since 1981, the debt-stabilization motive has almost vanished, while the
cyclical behavior of fiscal variables has not changed. This provides
indirect evidence that fiscal policy may have become “non-Ricardian” in the
US during recent decades
Keywords: Taxation, government spending, transfer payments, fiscal policy, deficits, fiscal Taylor, Rule; (follow links to similar papers)
JEL-Codes: E62,; E63,; H62,; H63; (follow links to similar papers)
27 pages, April 2009
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