THE STIMULATIVE EFFECTS OF ANTICIPATED GOVERNMENT SPENDING EXPANSIONS: EVIDENCE FROM SURVEY FORECASTS

Abstract

We employ a maximum forecast error variance VAR identi fi cation strategy to examine the e ff ects of anticipated government spending expansions. In our post -1981 U.S. sample, an anticipated expansion in government spending is delayed and persistent. This expansion is associated with increases in consumption and investment, as well as in real wages and hours. It also has an accelerator e ff ect on private capital investment and a delayed stimulative e ff ect on private sector productivity. Moreover, the monetary and tax policies accompanying the anticipated government spending expansion align well with the Fed ' s dual mandate and with less progressive federal tax reforms, respectively.