Time-varying fiscal policy in the US

To investigate time heterogeneity in the effects of fiscal policy in the US, we use a non-recursive, Blanchard and Perotti-like structural VAR with time-varying parameters, estimated through Bayesian simulation over 1965: 2-2009:2. Our evidence suggests that fiscal policy has lost some capacity to stimulate output but this trend is more pronounced for taxes net of transfers than for government expenditure, whose effectiveness declines only slightly. Fiscal multipliers keep conventional signs throughout. An investigation of changes in fiscal policy conduct indicates an increase in the countercyclical responsiveness of net taxes over recent decades, which appears to have reached a maximum during the 2008-2009 recession.