SFB 504 discussion paper No. 03-03:

Expectations and perceived causality in fiscal policy: an experimental analysis using real world data

Michele Bernasconi and Oliver Kirchkamp and Paolo Paruolo

Abstract:

We generate observable expectations about fiscal variables through laboratory experiments using real world data from several European countries as stimuli. We estimate an econometric model of individual expectations for fiscal policy, which nests various theories of expectations-forming and encompasses both micro- and macro- economic lines of research on fiscal policy. Agents' expectations are found neither to be consistent with rational nor with purely adaptive expectations. Expectations follow an augmented-adaptive scheme, which embodies the `spend and tax hypothesis' on the relationship between taxes and expenditure to a greater extent than in real world data. We relate this findings to current research on the effects of fiscal policy. Methodological implications of the present approach for experiments in macroeconomics are also discussed.

JEL-Classification: C91, D89, E62, H31

Keywords: Fiscal expectations, experiments, Antikeynesian


Another paper on this topic that takes into account further experimental evidence is our SFB 504 working paper 04-26 in this series.