TY  - JOUR
AU  - Mountford,Andrew
AU  - Uhlig,Harald
TI  - What are the Effects of Fiscal Policy Shocks?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14551
PY  - 2008
Y2  - December 2008
UR  - http://www.nber.org/papers/w14551
L1  - http://www.nber.org/papers/w14551.pdf
N1  - Author contact info:
Andrew Mountford
Dept Economics
Royal Holloway, University of London
Egham
Surrey
TW20 0EX
United Kingdom
E-Mail: A.Mountford@rhul.ac.uk

Harald Uhlig
Dept. of Economics
University of Chicago
1126 E 59th Street
Chicago, IL 60637
Tel: 773/702-3702
Fax: 773/702-8490
E-Mail: huhlig@uchicago.edu
AB  - We propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions. Specifically, we use sign restrictions to identify a government revenue shock as well as a government spending shock, while controlling for a generic business cycle shock and a monetary policy shock.  We explicitly allow for the possibility of announcement effects, i.e., that a current fiscal policy shock changes fiscal policy variables in the future, but not at present.  We construct the impulse responses to three linear combinations of these fiscal shocks, corresponding to the three scenarios of deficit-spending, deficit-financed tax cuts and a balanced budget spending expansion. We apply the method to US quarterly data from 1955-2000.  We find that deficit-financed tax cuts work best among these three scenarios to improve GDP, with a maximal present value multiplier of five dollars of total additional GDP per each dollar of the total cut in government revenue five years after the shock.
ER  -