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Working Paper
When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases
Pfajfar, Damjan; http://fedora:8080/fcrepo/rest/objects/authors/; Berge, Travis J. (2020-03-27)
We synthesize the recent, at times conflicting, empirical literature regarding whether fiscal policy is more effective during certain points in the business cycle. Evidence of state dependence in the multiplier depends critically on how the business cycle is defined. Estimates of the fiscal multiplier do not change when the unemployment rate is above or below its trend. However, we find that the multiplier is higher when the unemployment rate is increasing relative to when it is decreasing. This result holds using both a long time-series at the U.S. national level and for a panel of U.S. ...
Finance and Economics Discussion Series , Paper 2020-026

Working Paper
How to Starve the Beast: Fiscal Policy Rules
Martin, Fernando M. (2022-09-14)
Countries have widely imposed fiscal rules designed to constrain government spending and ensure fiscal responsibility. This paper studies the effectiveness and welfare implications of revenue, deficit and debt rules when governments are discretionary and prone to overspending. The optimal prescription is a revenue ceiling coupled with a balance budget requirement. For the U.S., the optimal revenue ceiling is about 15% of output, 3 percentage points below the postwar average. Most of the benefits can still be reaped with a milder constraint or escape clauses during adverse times. Imposing a ...
Working Papers , Paper 2019-026

Working Paper
Policy Rules and Large Crises in Emerging Markets
Espino, Emilio; Sanchez, Juan M.; Martin, Fernando M.; Kozlowski, Julian (2023-02-21)
Emerging countries have increasingly adopted rules to discipline government policy. The COVID-19 shock lead to widespread suspension and modification of these rules. We study rules and flexibility in a sovereign default model with domestic fiscal and monetary policies and long-term external debt. We find welfare gains from adopting monetary targets and debt limits during normal times. Though government policy cannot itself counteract fundamental shocks hitting the economy, the adoption of rules has a significant impact on policy, macroeconomic outcomes and welfare during large, unexpected ...
Working Papers , Paper 2022-018

Working Paper
Household's Balance Sheets and the Effect of Fiscal Policy
Andres, Javier; Bosca, Jose E.; Ferri, Javier; Fuentes-Albero, Cristina (2020-06-29)
Using households' balance sheet composition in the Panel Survey of Income Dynamics, we identify six household types. Since 1999, there has been a decline in the share of patient households and an increase in the share of impatient households with negative wealth. Using a six-agent New Keynesian model with search and matching frictions, we explore how changes in households' shares affect the transmission of government spending shocks. We show that the relative share of households in the left tail of the wealth distribution plays a key role in the aggregate marginal propensity to consume, the ...
Finance and Economics Discussion Series , Paper 2018-012r1

Working Paper
Macroeconomic Effects of Capital Tax Rate Changes
Bhattarai, Saroj; Lee, Jae Won; Park, Woong Yong; Yang, Choongryul (2022-05-20)
We study aggregate, distributional, and welfare effects of a permanent reduction in the capital tax rate in a quantitative model with capital-skill complementarity and household heterogeneity. Such a tax reform leads to expansionary long-run aggregate output and investment effects, but those are coupled with increases in wage, consumption, and income inequality. The tax reform is not self-financing and its effects depend crucially on whether the government cuts lump-sum transfers or raises distortionary labor or consumption tax rates for financing. The former results in a larger aggregate ...
Finance and Economics Discussion Series , Paper 2022-027

Working Paper
Vocational Considerations and Trends in Social Security Disability
Nelson, Jaeger; Michaud, Amanda M.; Wiczer, David (2016-10-16)
Along with health, Social Security Disability Insurance (SSDI) evaluates work-limiting disability by considering vocational factors including age, education, and past work experience. As the number of SSDI applicants and awards has increased, these vocational criteria are increasingly important to acceptances and denials. A unique state-level dataset allows us to estimate how these factors relate to the SSDI award process. These estimates are used to asses how changes to the demographic and occupational composition have contributed to awards trends. In our results, the prevalence of workers ...
Working Papers , Paper 2016-18

Working Paper
Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier
Choi, Joonkyu; Saffie, Felipe; Penciakova, Veronika (2021-01-29)
Using American Recovery and Reinvestment Act (ARRA) data, we show that firms lever their political connections to win stimulus grants and public expenditure channeled through politically connected firms hinders job creation. We build a unique database that links campaign contributions and state legislative election outcomes to ARRA grant allocation. Using exogenous variation in political connections based on ex-post close elections held before ARRA, we causally show that politically connected firms are 64 percent more likely to secure a grant. Based on an instrumental variable approach, we ...
Finance and Economics Discussion Series , Paper 2021-005

Working Paper
Global tax policy and the synchronization of business cycles
Weber, Caroline; Sly, Nicholas (2015-08-01)
Using a 30-year panel of quarterly GDP ?uctuations from of a broad set of countries, we demonstrate that the signing of a bilateral tax treaty increases the comovement of treaty partners' business cycles by 1/2 a standard deviation. This e?ect of ?scal policy is as large as the e?ect of trade linkages on comovement, and stronger than the e?ects of several other common ?nancial and investment linkages. We also show that bilateral tax treaties increase comovement in shocks to nations? GDP trends, demonstrating the permanent e?ects of coordination on ?scal policy rules. We estimate trend and ...
Research Working Paper , Paper RWP 15-7

Working Paper
Proxy SVARs: Asymptotic Theory, Bootstrap Inference, and the Effects of Income Tax Changes in the United States
Lunsford, Kurt Graden; Jentsch, Carsen (2016-07-19)
Proxy structural vector autoregressions (SVARs) identify structural shocks in vector autoregressions (VARs) with external proxy variables that are correlated with the structural shocks of interest but uncorrelated with other structural shocks. We provide asymptotic theory for proxy SVARs when the VAR innovations and proxy variables are jointly ?-mixing. We also prove the asymptotic validity of a residual-based moving block bootstrap (MBB) for inference on statistics that depend jointly on estimators for the VAR coefficients and for covariances of the VAR innovations and proxy variables. These ...
Working Papers (Old Series) , Paper 1619

Working Paper
Conservatism and Liquidity Traps
Schmidt, Sebastian; Nakata, Taisuke (2014-11-12)
Appointing Rogoff's (1985) conservative central banker improves welfare if the economy is subject to large contractionary shocks and the policy rate occasionally falls to the zero lower bound (ZLB). In an economy with occasionally binding ZLB constraints, the anticipation of future ZLB episodes creates a trade-off between inflation and output stabilization. As a consequence, inflation systematically falls below target even when the policy rate is above zero. A conservative central banker mitigates this deflationary bias away from the ZLB, improving allocations both at and away from the ZLB ...
Finance and Economics Discussion Series , Paper 2014-105

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