Kiel Working Papers, Kiel Institute for World Economics
No 1705:
An Estimated Fiscal Taylor Rule for the Postwar United States
Christopher Reicher
Abstract: This paper documents the systematic response of postwar
U.S. fiscal policy to fiscal imbalances and the business cycle using a
multivariate Fiscal Taylor Rule. Adjustments to taxes and purchases both
account for a large portion of the fiscal response to debt, while
authorities seem reluctant to adjust transfers. As expected, taxes are
highly procyclical; purchases are acyclical; and transfers are
countercyclical. Neither pattern has changed much over time, except that
adjustment happens more slowly after 1981 than before 1980. The role of
adjustments to purchases in stabilizing the debt indicates that the recent
discussion about spending reversals is highly relevant
Keywords: Spending reversals, Fiscal Taylor Rule, deficits, fiscal policy, taxes, spending, transfer payments; (follow links to similar papers)
JEL-Codes: E62,; E63,; H20,; H62; (follow links to similar papers)
7 pages, May 2011
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