U.S. Fiscal Policy: Ex Ante and Ex Post

• Activity Number: 412
• Type: Topic Contributed
• Date/Time: Tuesday, August 6, 2013 : 2:00 PM to 3:50 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Simon van Norden*+ and Dean Croushore
• Companies: HEC Montréal and University of Richmond
• Keywords: fiscal policy ; deficits ; forecasting ; real-time

Abstract

Fiscal policy relies on timely estimates and forecasts of fiscal variables. Many studies with European data have documented how characterizations of fiscal policy change when policy is judged using only the data available to policymakers. However, comparable work does not exist for US fiscal policy due in part to lack of appropriate "real-time" data on U.S. fiscal variables. This paper introduces a new data set intended for this purpose. Included are consistent data series on deficits, revenues, expenditures, unemployment rates, output growth, inflation, output gaps and cyclically adjusted deficits updated approximately twice per quarter from 1970 to 2006. Unlike forecasts from other sources, these are not based on unrealistic "current law" assumptions, were prepared by a large and expert staff, and were precisely the confidential estimates considered by those engaged in macroeconomic policy formulation.

We quantify the measurement and forecast error for both real and cyclically-adjusted deficits at various horizons, examine particularly important episodes and the factors contributing to large forecast errors. We also discuss the implications for fiscal policy formulation.