Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272017 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10373
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We study the conditions under which fiscal foresight – forward-looking agents anticipating future policy changes – results in perverse economic behavior through unintended intertemporal tradeoffs. Somewhat surprisingly, fiscal foresight by itself is far from sufficient for policy-induced incentives to perversely distort firm behavior. Rather, we show that there are two additional sets of conditions, at least one of which must hold to generate perverse behavior: (i) storable output, diminishing returns, and a non-competitive output market; (ii) "rolling base" policy design and storable output. These conditions suggest that the estimated impacts of fiscal policies may be sensitive to underlying economic or legislative characteristics and that policies targeted to specific firms or industries with unique characteristics may not be generalizable.
Subjects: 
fiscal foresight
intertemporal tradeoffs
real distortions
fiscal policy
JEL: 
E62
H20
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.