TY  - JOUR
AU  - Burnside,Craig
AU  - Eichenbaum,Martin
AU  - Fisher,Jonas
TI  - Fiscal Shocks and Their Consequences
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9772
PY  - 2003
Y2  - June 2003
UR  - http://www.nber.org/papers/w9772
L1  - http://www.nber.org/papers/w9772.pdf
N1  - Author contact info:
Craig Burnside
Department of Economics
Duke University
213 Social Sciences Building
Durham, NC 27708-0097
Tel: 919/660-1808
Fax: 919/684-8974
E-Mail: craig.burnside@duke.edu

Martin S. Eichenbaum
Department of Economics
Northwestern University
2003 Sheridan Road
Evanston, IL  60208
Tel: 847/491-8232
Fax: 847/491-7001
E-Mail: eich@northwestern.edu

Jonas Fisher
Economic Research Department
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL  60604
Tel: 312/312-8177
Fax: NA
E-Mail: jfisher@frbchi.org
AB  - This paper investigates the response of hours worked and real wages to fiscal policy shocks in the U.S. during the post World War II era. We identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income, and a persistent rise in aggregate hours worked as well as declines in real wages. The shocks are also associated with short lived rises in aggregate investment and small movements in private consumption. We describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock. Simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock. Once we allow for habit formation and investment adjustment costs, the model can also account reasonably well for the quantitative effects of a fiscal shock.
ER  -