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dc.contributor.author Burnside, C
dc.contributor.author Eichenbaum, M
dc.contributor.author Fisher, JDM
dc.date.accessioned 2010-03-09T15:41:27Z
dc.date.issued 2004-03-01
dc.identifier.citation Journal of Economic Theory, 2004, 115 (1), pp. 89 - 117
dc.identifier.issn 0022-0531
dc.identifier.uri http://hdl.handle.net/10161/2018
dc.description.abstract This paper investigates the response of hours worked and real wages to fiscal policy shocks in the post-World-War II US. We identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income, and a persistent rise in aggregate hours worked as well as declines in real wages. The shocks are also associated with short lived rises in aggregate investment and small movements in private consumption. We describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock. Simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock. Once we allow for habit formation and investment adjustment costs, the model can also account reasonably well for the quantitative effects of a fiscal shock. © 2003 Elsevier Inc. All rights reserved.
dc.format.extent 89 - 117
dc.format.mimetype application/pdf
dc.language.iso en_US
dc.relation.ispartof Journal of Economic Theory
dc.relation.isversionof 10.1016/S0022-0531(03)00252-7
dc.title Fiscal shocks and their consequences
dc.type Journal Article
dc.department Economics
pubs.issue 1
pubs.organisational-group /Duke
pubs.organisational-group /Duke/Trinity College of Arts & Sciences
pubs.organisational-group /Duke/Trinity College of Arts & Sciences/Economics
pubs.publication-status Published
pubs.volume 115

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