U.S. Fiscal Indicators, Inflation and Output

In this paper we explore the information content of a large set of fiscal indicators for US real output growth and infl ation. We provide evidence that fluctuations in certain fiscal variables contain valuable information to predict fluctuations in output and prices. The distinction between federal and state-local fiscal indicators yields useful insights and helps defi ne a new set of stylized facts for US macroeconomic conditions. First, we find that variations in state-local indirect taxes as well as state government surplus or de ficit help predict output growth. Next, the federal counterparts of these indicators contain valuable information for inflation. Finally, state-local expenditures help predict US in flation. A set of formal and informal stability tests con rm that these relationships are stable. The fiscal indicators in questions are also among the ones that yield the best in-sample and out-of-sample performances