What are the effects of fiscal policy shocks?

# What are the effects of fiscal policy shocks? > OpenAlex Metadata Hub · https://openalex.org/W3121962419 ## Bibliographic - **DOI:** 10.1002/jae.1079 - **Year:** 2009 - **Citations:** 1335 - **Open Access:** No (closed) - **License:** — - **Source:** https://doi.org/10.1002/jae.1079 ## Authors - Andrew Mountford - Harald Uhlig ## Abstract Abstract We propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions. Specifically, we use sign restrictions to identify a government revenue shock as well as a government spending shock, while controlling for a generic business cycle shock and a monetary policy shock. We explicitly allow for the possibility of announcement effects, i.e., that a current fiscal policy shock changes fiscal policy variables in the future, but not at present. We construct the impulse responses to three linear combinations of these fiscal shocks, corresponding to the three scenarios of deficit‐spending, deficit‐financed tax cuts and a balanced budget spending expansion. We apply the method to US quarterly data from 1955 to 2000. We find that deficit‐financed tax cuts work best among these three scenarios to improve GDP, with a maximal present value multiplier of five dollars of total additional GDP per each dollar of the total cut in government revenue 5 years after the shock. Copyright © 2009 John Wiley & Sons, Ltd. ## Keywords Economics, Fiscal policy, Shock (circulatory), Government spending, Vector autoregression, Monetary economics, Government revenue, Liberian dollar, Revenue, Macroeconomics, Deficit spending, Tax revenue, Finance, Welfare ## Concepts - Economics - Fiscal policy - Shock (circulatory) - Government spending - Vector autoregression - Monetary economics - Government revenue - Liberian dollar - Revenue - Macroeconomics - Deficit spending - Tax revenue - Finance - Welfare - Market economy - Internal medicine - Medicine - Debt --- *Metadata only — full text not imported unless Open Access license permits.*

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