TY  - JOUR
AU  - Leeper,Eric M.
AU  - Plante,Michael
AU  - Traum,Nora
TI  - Dynamics of Fiscal Financing in the United States
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15160
PY  - 2009
Y2  - July 2009
UR  - http://www.nber.org/papers/w15160
L1  - http://www.nber.org/papers/w15160.pdf
N1  - Author contact info:
Eric M. Leeper
Department of Economics
304 Wylie Hall
Indiana University
Bloomington, IN  47405
Tel: 812/855-9157
Fax: NA
E-Mail: eleeper@indiana.edu

Michael Plante
Department of Economics
105 Wylie Hall
Indiana University
Bloomington, IN 47405
E-Mail: mplante@indiana.edu

Nora Traum
Department of Economics
Nelson Hall Campus Box 8110
North Carolina State University
Raleigh, NC 27695
E-Mail: nora_traum@ncsu.edu
AB  - Dynamic stochastic general equilibrium models that include policy rules for government spending, lump-sum transfers, and distortionary taxation on labor and capital income and on consumption expenditures are fit to U.S. data under a variety of specifications of fiscal policy rules. We obtain several results. First, the best fitting model allows a rich set of fiscal instruments to respond to stabilize debt. Second, responses of aggregate variables to fiscal policy shocks under rich fiscal rules can vary considerably from responses that allow only non-distortionary fiscal instruments to finance debt. Third, based on estimated policy rules, transfers, capital tax rates, and government spending have historically responded strongly to government debt, while labor taxes have responded more weakly. Fourth, all components of the intertemporal condition linking debt to expected discounted surpluses---transfers, spending, tax revenues, and discount factors---display instances where their expected movements are important in establishing equilibrium. Fifth, debt-financed fiscal shocks trigger long lasting dynamics so that short-run multipliers can differ markedly from long-run multipliers, even in their signs.
ER  -