The effects of fiscal policy when planning horizons are finite
We study the importance of planning horizons for fiscal multipliers in a New-Keynesian model with bounded rationality. We show that, when agents have shorter planning horizons, government spending multipliers are smaller, whereas labor tax cut multipliers are larger. Furthermore, Ricardian equivalen...
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Article (Journal) |
| Language: | English |
| Published: |
24 October 2023
|
| Edition: | Online early view |
| In: |
Journal of money, credit and banking
Year: 2023, Pages: 1-34 |
| ISSN: | 1538-4616 |
| DOI: | 10.1111/jmcb.13100 |
| Online Access: | Verlag, kostenfrei, Volltext: https://doi.org/10.1111/jmcb.13100 Verlag, kostenfrei, Volltext: https://onlinelibrary.wiley.com/doi/abs/10.1111/jmcb.13100 
|
| Author Notes: | Joep Lustenhouwer, Kostas Mavromatis |
| Summary: | We study the importance of planning horizons for fiscal multipliers in a New-Keynesian model with bounded rationality. We show that, when agents have shorter planning horizons, government spending multipliers are smaller, whereas labor tax cut multipliers are larger. Furthermore, Ricardian equivalence breaks down, and transfer shocks feature a negative multiplier. Results are driven by the cognitive limitations of finite planning horizons that lead agent's expectations to deviate from the fully rational benchmark. We find larger investment responses, which are more in line with empirical findings than those of models with longer planning horizons, rule-of-thumb households, or a Blanchard-Yaari structure. |
|---|---|
| Item Description: | Gesehen am 27.11.2023 |
| Physical Description: | Online Resource |
| ISSN: | 1538-4616 |
| DOI: | 10.1111/jmcb.13100 |