The paper revisits the empirical link between fiscal policy and macroeconomic stability. Our basic presumption is that by definition, the operation of automatic stabilizers should always and everywhere contribute to greater macroeconomic stability (output and consumption). However, two stylized...

Fiscal consolidation will go too far if it pushes the economy towards a ?bad equilibrium? with high and growing fiscal deficits and debt, high risk premia on sovereign debt, slumping economic activity and plummeting confidence. In this paper we examine the possible conditions under which fiscal...

In this paper we develop a simple analytical framework to analyze “good” and “bad equilibria” in public-debt and growth dynamics. The “bad equilibrium” is characterised by the simultaneous occurrence, and adverse feedbacks between, high and growing fiscal deficits and debt, high risk...

This paper analyzes the decision of a government facing electoral uncertainty to implement structural reforms in the presence of fiscal restraints similar to the Stability and Growth Pact. The model shows that a pact may harm structural reforms, sacrificing future growth for present stability....

This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between the effects of changes in personal and corporate income taxes using a new narrative account of federal tax liability changes in these two tax components. We develop an estimator in which...

The key policy challenge for Turkey in the years ahead will be to enhance and consolidate the advances made since the nation’s 2000-01 economic crisis. Higher growth could reduce unemployment and raise living standards toward European Union levels. This paper reviews Turkey’s...

We examine the impact of fiscal policy interventions in an environment where the short term nominal interest rate is at the zero bound. In the basic New Keynesian model in which the monetary authority operates a Taylor rule, globally multiple equilibria arise, some of which display all the...

We evaluate the extent to which a dynamic stochastic general equilibrium model can account for the impact of "surprise" and "anticipated" tax shocks estimated from U.S. time-series data. In U.S. data, surprise tax cuts have expansionary and persistent effects on output, consumption, investment...

We provide empirical evidence on the dynamic effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes using a timing-convention. We document that pre-announced but not yet implemented tax cuts give rise to contractions in output,...

Empirical estimates of the impact of government spending shocks disagree on central issues such as the size of output multipliers and the responses of consumption and the real wage. One explanation for the disagreement is that fiscal shocks are often anticipated. Due to misspecification of the...