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Publication Detailed Description
Journal Title
Journal of Economic Dynamics and Control
Year (definitive publication)
2014
Language
English
Country
Netherlands
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Abstract
We study the impact of anticipated fiscal policy changes in a Ramsey economy where agents form long-horizon expectations using adaptive learning. We extend the existing framework by introducing distortionary taxes as well as elastic labor supply, which makes agents' decisions non-predetermined but more realistic. We detect that the dynamic responses to anticipated tax changes under learning have oscillatory behavior that can be interpreted as self-fulfilling waves of optimism and pessimism emerging from systematic forecast errors. Moreover, we demonstrate that these waves can have important implications for the welfare consequences of fiscal reforms
Acknowledgements
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Keywords
Fiscal policy; Adaptive learning; Oscillations; Welfare
Fields of Science and Technology Classification
- Economics and Business - Social Sciences
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