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Fiscal Policy, News Shocks and Business Fluctuations
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TitleFiscal Policy, News Shocks and Business Fluctuations  
AuthorRao Xiaohui and Liu Fang  
OrganizationSchool of Economics, Jiangxi university of Finance and Economics;School of Economics, Henan University of Economics and Law; 
Key WordsFiscal Policy; News Shocks; Business Fluctuations 
AbstractTraditional real business cycle theory models used to study government spending and tax effects typically make the conventional information assumption that fiscal policy changes are unanticipated by the private sector. However, agents can anticipate a planned change several quarters before fiscal policy changes. We construct a dynamic stochastic gereral equilibrium(DSGE) model in where news shocks on government spending and two distortionary taxes rules are considered. We find that news about a future increase in government spending and in labor income tax make output, labor time, and investment increase before implementation. News about a future increase in capital income tax make a recession effect before it occurs. 
Serial NumberWP550 
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