Template-Type: ReDIF-Paper 1.0
Title: Does anticipation of government spending matter? The role of (non-)defense spending
Author-Name: Jörn Tenhofen
Author-Email: joern.tenhofen@uni-bonn.de
Author-Name: Guntram B. Wolff
Classification-JEL: C32, C51, E62, H30
Keywords: fiscal policy anticipation, SVAR, consumption response, government spending
Abstract: We investigate the effects of government expenditure on private consumption when the private sector 
	anticipates the fiscal shocks. In order to capture anticipation of fiscal policy, we develop a new 
	method based on a structural vector autoregression (SVAR). By simulating data from a theoretical model 
	featuring (imperfect) fiscal foresight, we demonstrate the ability of our new approach to correctly 
	capture macroeconomic dynamics. We take advantage of the flexibility of our econometric approach and 
	study those subcomponents of total government spending, which have different macroeconomic effects
	 according to economic theory. Using post-WWII US data, we find that when taking into account anticipation,
	 private consumption significantly decreases in response to a defense expenditure shock, whereas when 
	considering shocks to non-defense spending, consumption increases significantly. A standard SVAR does
	 not produce clear consumption responses, highlighting the importance of anticipation. Our results thus
	 reconcile the different findings of the narrative and SVAR approaches to the study of fiscal policy
	 effects.
Note: 
Length: 49
Creation-Date: 2010-05
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse12_2010.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse12_2010