Agnello, Luca; Dufrénot, Gilles; Sousa, Ricardo M. - Núcleo de Investigação em Políticas Económicas … - 2012
This paper tests for nonlinear effects of asset prices on the US fiscal policy. By modeling government spending and taxes as time-varying transition probability (TVTP) Markovian processes, we find that taxes significantly adjust in a nonlinear fashion to asset prices. In particular, taxes...