Template-Type: ReDIF-Paper 1.0
Author-Name: Nicola Giammarioli 
Author-X-Name-First: Nicola
Author-X-Name-Last: Giammarioli
Author-Name: Luisa Lambertini 
Author-X-Name-First: Luisa
Author-X-Name-Last: Lambertini
Author-Email: luisa.lambertini@epfl.ch
Author-Workplace-Name: Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland
Author-Name: Luca Onorante 
Author-X-Name-First: Luca
Author-X-Name-Last: Onorante
Title: Is U.S. Fiscal Policy Optimal?
Abstract: We find and compare two simple fiscal rules. The first is a theoretical rule that
approximates well Ramsey-optimal fiscal policy in a DSGE model calibrated to the
U.S. economy over the period 1955:1 to 2007:3. The second is an empirical rule that
approximates well actual U.S. fiscal policy over the same period. Our main findings are: 
First, Ramsey-optimal fiscal policy displays limited volatility even in the presence
of sticky prices, while public debt absorbs most of the shocks. Second, actual U.S.
fiscal policy is excessively counter-cyclical. Ramsey-optimal fiscal policy is negatively
correlated with output over the business cycle, as expansions generate reduction in the
level of public debt and the tax rate and vice versa. On the other hand, actual fiscal
policy is positively correlated with output, with tax rate being raised during expansions
and reduced during recessions. Third, actual fiscal policy is inconsistent with long-run
debt sustainability over the period considered.
Length: 34 pages		
Creation-Date: 2008-01
Revision-Date:
Publication-Status: 
File-URL: http://infoscience.epfl.ch/record/109473/files/CFP2008_01.pdf
Number:
Classification-JEL: E62
Keywords: fiscal policy
Handle: RePEc:cif:wpaper:200802