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dc.contributor.author Leeper, Eric M.
dc.contributor.author Walker, Todd B.
dc.contributor.author Yang, Shu-Chun Susan
dc.date.accessioned 2008-06-11T13:42:27Z
dc.date.available 2008-06-11T13:42:27Z
dc.date.issued 2008-05-12
dc.identifier.uri http://ssrn.com/abstract=1132442 en
dc.identifier.uri http://www.iub.edu/~caepr/RePEc/PDF/2008/CAEPR2008-013.pdf en
dc.identifier.uri http://hdl.handle.net/2022/3140
dc.description.abstract Fiscal foresight---the phenomenon that legislative and implementation lags ensure that private agents receive clear signals about the tax rates they face in the future---is intrinsic to the tax policy process. This paper develops an analytical framework to study the econometric implications of fiscal foresight. Simple theoretical examples show that foresight produces equilibrium time series with a non-invertible moving average component, which misaligns the agents' and the econometrician's information sets in estimated VARs. Economically meaningful shocks to taxes, therefore, cannot be extracted from statistical innovations in conventional ways. Econometric analyses that fail to align agents' and the econometrician's information sets can produce distorted inferences about the effects of tax policies. Because non-invertibility arises as a natural outgrowth of the fact that agents' optimal decisions discount future tax obligations, it is likely to be endemic to the study of fiscal policy. In light of the implications of the analytical framework, we evaluate two existing empirical approaches to quantifying the impacts of fiscal foresight. The paper also offers a formal interpretation of the narrative approach to identifying fiscal policy. en
dc.format.extent 445091 bytes
dc.format.mimetype application/pdf
dc.language.iso en_US en
dc.publisher Center for Applied Economics and Policy Research en
dc.relation.ispartofseries CAEPR Working Papers en
dc.relation.ispartofseries 2008-013 en
dc.relation.isversionof This paper is also available on SSRN and RePEc. en
dc.subject CAEPR en
dc.subject Center for Applied Economics and Policy Research en
dc.subject tax foresight en
dc.subject non-invertible moving average en
dc.subject VAR en
dc.subject Tax policy en
dc.title Fiscal Foresight: Analytics and Econometrics en
dc.type Working Paper en


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