Future Fiscal and Budgetary Shocks
We study the effects of future tax and budgetary shocks in a non-monetary and possibly non-Ricardian economy. An (unanticipated) temporary labor tax cut to be effective on a given future date—a delayed “debt bomb”—causes at once a drop in the (unit) value placed on the firms' business asset, th...
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Institutional Knowledge at Singapore Management University
2008
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sg-smu-ink.soe_research-10722010-09-23T05:48:03Z Future Fiscal and Budgetary Shocks HOON, Hian Teck Phelps, Edmund S. We study the effects of future tax and budgetary shocks in a non-monetary and possibly non-Ricardian economy. An (unanticipated) temporary labor tax cut to be effective on a given future date—a delayed “debt bomb”—causes at once a drop in the (unit) value placed on the firms' business asset, the customer, with the result that share prices, the hourly wage, and employment drop in tandem. This paradox of reduced activity through announcement of future “stimulus” does not hinge on an upward jump of long interest rates. A future tax-rate cut lacking a “sunset” provision has the same negative effects. 2008-11-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/73 info:doi/10.1016/j.jet.2006.12.008 https://ink.library.smu.edu.sg/context/soe_research/article/1072/viewcontent/FutureFiscal.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Future shocks; Business assets; Employment. Econometrics Finance |
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Future shocks; Business assets; Employment. Econometrics Finance |
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Future shocks; Business assets; Employment. Econometrics Finance HOON, Hian Teck Phelps, Edmund S. Future Fiscal and Budgetary Shocks |
| description |
We study the effects of future tax and budgetary shocks in a non-monetary and possibly non-Ricardian economy. An (unanticipated) temporary labor tax cut to be effective on a given future date—a delayed “debt bomb”—causes at once a drop in the (unit) value placed on the firms' business asset, the customer, with the result that share prices, the hourly wage, and employment drop in tandem. This paradox of reduced activity through announcement of future “stimulus” does not hinge on an upward jump of long interest rates. A future tax-rate cut lacking a “sunset” provision has the same negative effects. |
| format |
text |
| author |
HOON, Hian Teck Phelps, Edmund S. |
| author_facet |
HOON, Hian Teck Phelps, Edmund S. |
| author_sort |
HOON, Hian Teck |
| title |
Future Fiscal and Budgetary Shocks |
| title_short |
Future Fiscal and Budgetary Shocks |
| title_full |
Future Fiscal and Budgetary Shocks |
| title_fullStr |
Future Fiscal and Budgetary Shocks |
| title_full_unstemmed |
Future Fiscal and Budgetary Shocks |
| title_sort |
future fiscal and budgetary shocks |
| publisher |
Institutional Knowledge at Singapore Management University |
| publishDate |
2008 |
| url |
https://ink.library.smu.edu.sg/soe_research/73 https://ink.library.smu.edu.sg/context/soe_research/article/1072/viewcontent/FutureFiscal.pdf |
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1770569021469491200 |