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The Fiscal Response to Revenue Shocks

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  • Simon Berset
  • Martin Huber
  • Mark Schelker

Abstract

We study the impact of fiscal revenue shocks on local fiscal policy. We focus on the very volatile revenues from the immovable property gains tax in the canton of Zurich, Switzerland, and analyze fiscal behavior following large and rare positive and negative transitory revenue shocks. We apply causal machine learning strategies and implement the post-double-selection LASSO estimator to identify the effect of revenue shocks on public finances. We find that local policymakers predominantly smooth transitory fiscal shocks.

Suggested Citation

  • Simon Berset & Martin Huber & Mark Schelker, 2021. "The Fiscal Response to Revenue Shocks," CESifo Working Paper Series 8854, CESifo.
    • Handle: RePEc:ces:ceswps:_8854
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    More about this item

    Keywords

    local public finance; fiscal policy; fiscal shocks;
    All these keywords.

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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