Assessing the Effects of Fiscal Shocks

  title={Assessing the Effects of Fiscal Shocks},
  author={Craig Burnside and Martin Eichenbaum and Jonas D. M. Fisher},
This paper investigates the response of hours worked and real wages to fiscal policy shocks in the U.S. during the post World War II era. We identify these shocks with exogenous changes in military purchases and argue that they lead to (i) a persistent increase in government purchases and tax rates on capital and labor income, and (ii) a persistent rise in aggregate hours worked as well as declines in real wages. The shocks are also associated with short lived rises in aggregate investment and… CONTINUE READING

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