Working Paper: NBER ID: w21822
Authors: Eric M. Leeper
Abstract: Dramatic fiscal developments in the wake of the 2008 financial crisis and global recession led researchers to recognize how little we know about fiscal policies and their impacts. This essay argues that fiscal analysis that aims to address pertinent issues and provide useful inputs to policymakers is intrinsically hard. I illustrate this with examples torn from the economic headlines in many countries. I identify some essential ingredients for useful fiscal analysis and point to examples in the literature that integrate some of those ingredients. Recent methodological advances give reason to be optimistic about fiscal analyses in the future.
Keywords: Fiscal Policy; Economic Analysis; Monetary Policy
JEL Codes: E52; E61; E62; E63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal policy generates confounding dynamics (E62) | Economy at various frequencies (E32) |
| Changes in tax rates and government spending (H59) | Output and employment (E23) |
| Fiscal impacts are heterogeneous (H39) | Different agents react differently to fiscal policy changes (H39) |
| Fiscal variables are strongly endogenous (E62) | Timing and nature of fiscal policy decisions influenced by existing economic conditions (E62) |
| Fiscal actions carry inside and outside lags (E62) | Timing of economic responses (E65) |
| Political nature of fiscal choices (H39) | Challenges in analyzing fiscal policy (E62) |