Systematic fiscal policy and macroeconomic performance: A critical overview of the literature

The literature on systematic fiscal policy and macroeconomic performance in industrialized countries is large but fragmented. Based on a broad overview of that literature, several patterns emerge. First, the empirical literature points toward strongly anticyclical policy, which consists of procyclical tax revenues, acyclical tax rates and government purchases, and countercyclical transfer payments. Secondly, consolidation in response to the debt has come primarily through adjustments to taxes and possibly purchases. Thirdly, a large government is associated with reduced macroeconomic volatility. Meanwhile, the theoretical literature on anticyclical fiscal policy has gone from mostly focusing on government purchases and tax rates toward beginning to focus on transfer payments, although more quantitative work remains to be done in linking theory with empirics. In addition, a policy literature has begun to develop, which has applied lessons from the theoretical literature in order to understand different consolidation scenarios and different proposed fiscal rules, particularly in Europe. (Published as Survey and Overview) JEL E62 E63 H30


Introduction
Traditionally, macroeconomists have put great emphasis upon the macroeconomic e¤ects of systematic …scal policy, particularly automatic stabilizers. However, since Taylor (1993) proposed his eponymous monetary policy rule, more emphasis has gone instead into evaluating the e¤ects of systematic monetary policy. This situation has begin to change recently. In particular, since the onset of the Great Recession and the arrival of interest rates at the zero lower bound, discussion has begun to swing back toward …scal policy. While one part of this discussion has emphasized discretionary policy, another part of this discussion has emphasized systematic …scal policy, particularly …scal rules. 1 Given these developments, an appraisal of the current state of the literature is in order. Based on a broad overview of the literature, both the empirical and theoretical literature on this subject have begun to place an increased emphasis on the role of transfer payments and the role of rule-of-thumb consumers as a propagation mechanism, although more work remains to be done in this area. Additionally, a small but expanding policy literature has begun to apply the lessons of the theoretical literature to the current situation. Altogether, both the theoretical and policy literature can bene…t from a closer integration with the empirical literature.
The literature on systematic …scal policy is somewhat fragmented, although it is possible to synthesize a number of key points. The early literature on systematic …scal policy focuses on …scal sustainability and …scal-monetary interactions, particularly on the …scal prerequisites for price stability. Out of that literature stems a broader empirical literature, which has shifted its focus toward quantifying the strength of …scal consolidation in response to the debt in addition to quantifying anticyclical …scal policy. 2 Synthesizing the results from the current state of the empirical literature with respect to industrialized countries, …scal authorities have tended to engage in strong anticyclical …scal policy which featuring countercyclical adjustments to transfer payments and constant tax rates, while …scal authorities have engaged in consolidation primarily through adjustments to taxes and possibly purchases. Additionally, a larger government or welfare state tends to be associated with less output volatility. While the empirical literature is rather fragmented, the key patterns in that literature seem to line up with each other.
The theoretical literature, meanwhile, has focused on a wider variety of issues such as basic …scal transmission mechanisms, optimal …scal policy, anticyclical policies, …scal policy multipliers, and the role of government size. With the exception of the literature on the role of government size, the theoretical literature has not lined up closely with the empirical literature. Based on a comparison of the two literatures, the theoretical literature in general might bene…t from an increasing emphasis on rule-of-thumb consumers and countercyclical transfer payments, rather than procyclical tax rates or countercyclical government purchases. This emphasis on rule-of-thumb consumers might go hand-in-hand with recent developments from the labor market literature. Additionally, a new and expanding policy literature could ben-e…t from a stronger integration with the empirical literature in particular, to the extent that any proposed policy framework might wish to take actual historical behavior into account.
Because of the fragmented nature of the overall literature, a broad survey can help to uncover a few commonalities which would otherwise go undetected. Such a survey is designed to help guide readers toward the main …ndings from the di¤erent strands of the literature and to provide a synthesis of these di¤erent strands. It is not possible to provide a detailed listing of every paper within each strand, nor to discuss every single …nding. Additionally, a focus on systematic policy by necessity omits an extensive discussion of …scal multipliers, beyond basic transmission mechanisms and intertemporal considerations. The issue of …scal multipliers is already a well-researched issue, and those interested in the state of the literature on multipliers should see Ramey (2011) on spending multipliers, Mertens and Ravn (2012) on tax multipliers, or Hebous (2011) on discretionary …scal policy in general.

Testing for sustainability
The early empirical literature on systematic …scal policy focuses on the issue of …scal sustainability and its relationship with monetary policy. Sargent and Wallace (1981), Leeper (1991Leeper ( , 1993, Sims (1994), Woodford (1994Woodford ( , 1995Woodford ( , 2001, and others observe that the ability of central bankers to determine the price level depends on the presence of a …scal policy regime which works to stabilize the public debt through consolidation in response to the debt (a "Ricardian" …scal policy), absent default. This observation is based on the debt valuation equation, which implies that the real value of the public debt should equal the present value of real primary surpluses. When the systematic conduct of …scal policy does not ensure that surpluses adjust to match the debt, something else (such as a change in the price level) must adjust the real value of the government debt. In such a situation, it is not possible for monetary authorities to control the price level. This line of reasoning has come to be known as the "…scal theory of the price level", and it is the basis for much of the literature on …scal-monetary interactions. As a more general matter, changes in the price level a¤ect the real stock of debt and hence have …scal policy implications.
A fair amount of econometric work has therefore gone into developing tests for debt sustainability. Hamilton and Flavin (1986), Wilcox (1989), Kremers (1989), Trehan and Walsh (1991), and Hakkio and Rush (1991) all develop tests to see whether or not the U.S. public debt has followed a sustainable course. These tests test whether the debt has historically followed a stationary process, or else they test whether revenues and spending were cointegrated one-to-one. Bohn (1991) …nds evidence that public de…cits in the United States respond negatively to the debt stock based on an error correction model using a time series starting in 1791, which would imply sustainability. Bohn (1995) discusses issues related to the discounting of future cash ‡ows when discussing debt sustainability in the presence of risk. Bohn (1998) discusses the regime-dependence of long-run …scal policy in the United States, which has featured periods of debt instability caused by wars, followed by consolidation during peacetime. Canzoneri, Cumby, and Diba (2001) also argue that the U.S. data overall support a "Ricardian" view.
The subsequent literature on sustainability has also expanded to cover a wider range of countries. Afonso (2005) argues that the data do not support the Ricardian view for the EU-15 countries, while Mendoza and Ostry (2008) argue that on average, international …scal policy is Ricardian. Altogether, the sustainability literature has led to mixed conclusions depending on the time sample (since the beginning of the Republic, the postwar period, or some other period) and notion of sustainability employed. Bohn (2007) critiques the literature on sustainability, by noting that a debt ratio of any …nite order of integration may be compatible with the transversality conditions implied by the theoretical literature. With a …nite sample, there is always an order of integration greater than the length of the sample which will allow for Ricardian …scal policy. In practice, the patterns from the literature indicate that …ndings of debt sustainability are more likely to occur when looking at a long time series and when modeling the public debt as I(1) rather than I(0), although it is not truly possible to test for sustainability without other auxiliary assumptions.

Quantifying systematic …scal policy in the United States
Since the initial literature on sustainability, the subsequent literature has focused more on quantifying the ways in which …scal policy responds to the debt and to the business cycle. One strand of literature has looked at systematic …scal policy responses to past …scal shocks and to other types of shocks. As with the sustainability literature, these early studies come to mixed conclusions. These early studies include those of Anderson, Wallace, and Warner (1986), Manage and Marlow (1986), and Ram (1988). These studies have sought to ascertain whether spending Granger caused taxes, or vice versa. Von Furstenberg, Green, and Jeong (1986), using a VECM, …nd that taxes have tended to carry most of the burden of …scal adjustment in response to de…cits based on a sample from 1954 through 1981. Miller and Russek (1990) report similar results, with some quali…cations. Bohn (1991) looks at the behavior of total federal government spending and revenue beginning in 1792 using a VECM. He …nds that adjustments to taxes and to total spending each have accounted for a signi…cant share of …scal consolidation in response to de…cits.
More recently, emphasis has swung toward more parsimonious models of …scal policy. Taylor (2000) follows the approach employed by Taylor (1993) by proposing a rule-of-thumb …scal rule (or …scal reaction function) whereby …scal authorities automatically adjust the de…cit-GDP ratio by 0.5 percentage points for every one percent fall in the output gap, and then comparing that rule against recent data. Auerbach (2002) estimates rules for revenue and spending formulated on this basis, and he comes up with similar results to Bohn (1991) for a sample beginning in 1984. Muscatelli, Tirelli, and Trecroci (2004a) …nd a strong positive response of the level of government spending to growth in the output gap when estimating a …scal rule embedded within DSGE model, and they …nd a strong positive response of the level of the tax rate to the level of the output gap. They also …nd that government spending falls in response to lagged budget de…cits and that taxes rise in response to lagged budget de…cits. Romer and Romer (2009), on the other hand, …nd evidence that discretionary tax cuts "crowd in" government spending based on a narrative approach, while a large portion of tax policy is driven by future changes in spending. Reicher (2012Reicher ( , 2013) estimates a simple multi-instrument …scal rule using postwar U.S. data where tax revenues, government purchases, transfer payments, and a balancing item may respond to either the public debt or to output, under the assumption that the driving process behind the residuals to these items (for instance, foreign conditions or the demographically-driven demand for transfer payments) follows a unit root. Reicher …nds that the entire government sector for the United States has adjusted taxes and, depending on the time period, government purchases in response to the changes in the debt ratio. Altogether, the evidence for the United States has pointed toward a strong response of taxes to the public debt and a possible response of government purchases to the public debt, with transfer payments and tax levels, but not tax rates, responding to the output gap.

Quantifying systematic …scal policy outside the United States
A literature parallel to that for the United States has looked at systematic …scal policy in industrialized countries outside of the United States. This literature has faced similar challenges and come to mixed conclusions. One strand of that literature has concentrated on measuring the cyclicality of …scal aggregates for industrialized countries. Van den Noord (2000) compiles evidence on how tax revenues relate to the output gap for a number of countries, using information regarding the tax system of each country. Based on that set of metrics, he describes the systematic di¤erences in anticyclical …scal policy across countries, and he describes the danger of stop-and-go …scal policy whereby automatic stabilizers are o¤set by …scal consolidation. Lane (2003) provides econometric evidence that political power dispersion may positively a¤ect the procyclicality of various categories of government spending, using a regression approach to measure cyclicality, while GDP per capita may negatively a¤ect the procyclicality of government spending.
Other studies which discuss the measurement of the cyclical component of …scal policy in industrialized countries include those of Bouthevillain et al. (2001), who adopt a hybrid approach, Girouard and André (2005), who update the approach of van den Noord and …nd a strong degree of anticyclical …scal policy, Égert (2010), who …nds a strong degree of anticyclical …scal policy when a …scal reaction function is estimated in …rst di¤erences, and Bénétrix and Lane (2013), who …nd only a weak degree of anticyclical …scal policy when a …scal reaction function is estimated in levels. Additional studies on the repsonse of …scal policy to output or the debt include those of Galí and Perotti (2003), Ballabriga and Martinez-Mongay (2003), and Claeys (2006), who …nd a broad pattern of consolidation through de…cit stabilization as well as anticyclical policy, without a clear pattern of stabilization in debt levels. Yet more studies include those of Fedelino et al. (2009), who discuss detrending, Golinelli and Momigliano (2009), who discuss the role that model speci…cation and data revisions play in the estimated degree of anticyclicality of …scal policy, García, Arroyo, Mínguez, and Uxó (2009), who …nd that …scal policy in Europe appears to be heterogeneous, Égert (2010) and Fatás and Mihov (2012), who …nd a wide range of results across econometric speci…cations, and Bénétrix and Lane(2013), who …nd a weak response of …scal policy to output. This strand of the literature has come to contradictory conclusions, with econometric estimates often …nding a lower degree of anticyclical …scal policy than more structural approaches. Plödt and Reicher (2014) analyze the role of di¤erent econometric speci…cations in driving these results when applied to a common euro area data set, and they argue that taken together, the econometric evidence supports a speci…cation which gives results more in line with those of Girouard and André (2005) and less in line with those of Bénétrix and Lane (2013). 3 Less empirical work has related individual …scal instruments to either the business cycle or to the debt in a cross-country setting. Végh and Vuletin (2012) measure the procyclicality of top and marginal statutory tax rates in a panel of countries using a regression approach. They …nd that tax rates are acyclical for industrialized countries (but countercyclical in developing countries). Reicher (2013) estimates a set of rich multi-instrument rules for a panel of twenty countries, …nding that most industrialized countries have engaged in systematic …scal policy in a broadly similar way to the United States, with a few cross-country di¤erences as well. Interestingly, tax rates are acyclical in industrialized countries, while transfer payments are strongly countercyclical. The former …nding is in line with the …ndings of Végh and Vuletin (2012), and both …ndings indicate that ‡uctuations in disposable income, rather than in tax rates or government purchases, are likely to be the main mechanism through which automatic stabilizers stabilize the economy.

Quantifying the stabilizing e¤ects of government size
There is also a small but well-focused literature on the stabilizing e¤ects of government size. Galí (1994) and Mihov (2001, 2012) document that, in a cross section of countries and U.S. states, a higher share of government spending in GDP is associated with reduced volatility in GDP, employment, and private investment and consumption. Debrun and Kapoor (2010) regress volatility in output growth on measures of government size (fol-lowing Fatás and Mihov (2001)) and on the anticyclicality of …scal policy derived from a regression approach. They …nd that while government size seems to be associated with less volatility, measured strength in anticyclical …scal policy seems not to be strongly related with volatility. Reicher (2013) …nds that a large welfare state (expressed as a high rate of taxes or transfer payments, less so government purchases) seems to be associated with less volatility, although the evidence on the e¤ects of anticyclical policy are ambiguous. Both Debrun and Kapoor (2010) and Reicher (2013) caution that attenuation bias might be an issue in these regressions. However, there does appear to be a clear, negative statistical relationship between government size (in particular the size of the tax and transfer state) and output volatility.

Understanding systematic …scal policy in theory 4.1 Understanding standard …scal policy transmission mechanisms
To understand the e¤ects of …scal policy rules in theory, an overview of the main …scal policy transmission mechanisms is in order. A rather strong benchmark for understanding …scal policy transmission remains the work of Barro (1974). If …scal policy is …nanced entirely through nondistortionary taxes or transfers, the pricing of government debt ensures that a …scal expansion today must be associated with a correspondingly large …scal contraction tomorrow, in present value terms, which would lead households to feel no richer than before. In practice, there are three main mechanisms through which …scal policy a¤ects the macroeconomy in macroeconomic models. Government purchases might vary over time, operating through an income e¤ect; taxes may be distortionary, operating through a substitution effect; and a share of consumers might spend transfer payments instead of saving them. A short overview of these main mechanisms is helpful in understanding how systematic …scal policy might a¤ect the macroeconomy.
On the spending side, Baxter and King (1993) set up an RBC-style model where …scal policy actions are taken through adjustments to government purchases, which represent a component of …nal demand. In such models, an increase in government spending operates through an income e¤ect. By making households feel poorer, an increase in government spending should cause workers to work harder, increasing total output but crowding out private consumption. The crowding-out of private consumption is a controversial proposition. Linnemann and Schabert (2004) and Linnemann (2006) address this controversy and …nd that if preferences between private and government consumption are nonseparable, then an increase in government purchases can increase both private consumption and real output. In general, however, the transmission channel of government purchases in standard RBC-style models is best understood as operating through an income e¤ect.
On the taxation side, Braun (1994), McGrattan (1994), and Chang (1995) analyze the e¤ects of distortionary taxation on the business cycle. Their propagation mechanism relies upon the idea that distortionary taxes drive a wedge between the supply and demand for factors of production. When labor taxes are high, for instance, workers move inward along their labor supply curves and work fewer hours. This transmission channel for taxes re ‡ects standard microeconomic reasoning whereby taxes operate through a substitution e¤ect.
On the transfer side, rule-of-thumb consumers can generate an e¤ect of taxes and transfer payments on real aggregate demand and on production, using some degree of old Keynesian logic. Mankiw (2000) and Galí, López-Salido, and Vallés (2007) obtain …scal non-neutrality by assuming that a fraction of consumers consumes entirely from its disposable income, perhaps because they lack access to credit markets. An increase in transfers to households would result in an increase in consumption among these households, providing an additional channel through which …scal stimulus may have real e¤ects. Crowding out becomes less of an issue in this type of model than in models with homogeneous consumers, although Cogan, Cwik, Taylor, and Wieland (2010) caution that the results from New Keynesian models with this mechanism tend to look more like the results from RBC models than from old Keynesian models. This transmission channel re ‡ects reasoning centered around market incompleteness or non-optimizing behavior.

Understanding optimal …scal policy
Based on the types of transmission mechanisms outlined in the previous section, there is an extensive literature on optimal …scal policy to mirror the literature on optimal monetary policy. Bohn (1992) demonstrates that an optimizing …scal authority would adjust both real purchases and distortionary taxes in response to shocks. Chari, Christiano, and Kehoe (1994) and Benigno and Woodford (2006) derive an optimal …scal policy path through a linear-quadratic approach in an RBC framework. They …nd that optimal labor taxes should ‡uctuate relatively little, since the distortions from labor taxes are large and convex. Siu (2004) and Schmitt-Grohé and Uribe (2005) compute a Ramsey optimal …scal and monetary policy path for a New Keynesian model, and they arrive at similar conclusions. 4 Arseneau and Chugh (2008) caution that this set of results is not necessarily robust to di¤erent spec-i…cations of the labor market and of the wage bargaining process.

4.3
Understanding the stabilizing e¤ects of anticyclical …scal policy Andersen (2005) presents a review of the early literature on the automatic stabilization e¤ects of di¤erent …scal rules. As with the optimal policy literature, studies have tended to focus on one …scal instrument at a time. With respect to tax policy, Jones (2002) shows that procyclical movements in tax rates may have exerted an important stabilizing e¤ect in postwar U.S. data, based on simulations conducted using an RBC model. Moldovan (2010) …nds that procyclical tax rates can stabilize output but not increase welfare in an RBC model with monopolistic competition. This stabilization result appears because a larger tax wedge during good times can help to undo the e¤ects of the original shock. However, the welfare properties of standard RBC models are such that deviations in allocations from the equilibrium allocation are necessarily welfare-reducing. While standard RBC models point toward a clear channel through which anticyclical movements in tax rates may stabilize output, they lack a clear motive for output stabilization in the …rst place. Trecroci (2004a, 2004b) …nd ambiguous e¤ects of automatic stabilizers in a New Keynesian economy which features a motive for output stabilization. As with the RBC literature, Muscatelli et al. …nd that procyclical tax rates tend to exert a stabilizing role in their economy as well, particularly in the presence of rule-of-thumb consumers.
With respect to real government purchases, the literature has pointed toward a stabilizing e¤ect in the case that these government purchases vary countercyclically. In most DSGE models, an increase in government purchases during bad times puts downward pressure on private consumption, shifting labor supply outward and increasing output. Andersen and Holden (2002), Andersen and Spange (2006), Doménech (2006), Ratto Roeger, andin 't Veld (2006), Kirsanova, Satchi, Vines, and Wren-Lewis (2007), Colciago, Ropele, Muscatelli, and Tirelli (2008), and Kumhof and Laxton (2009) all …nd that countercyclical government spending based on this mechanism may stabilize total output. However, the stabilization of output through government purchases may destabilize private consumption through crowding out and hence reduce welfare. This should be the case unless the share of rule-of-thumb consumers is particularly high, or else some other mechanism such as nonseparable preferences helps to su¢ ciently mitigate crowding out.
More recently, the literature has begun to analyze the e¤ects of countercyclical transfer payments. Kumhof and Laxton (2010) and Bi and Kumhof (2011) specify a …scal rule where …scal surpluses respond to the contemporaneous tax gap and to the public debt, in a model driven by technology shocks. This …scal rule deviates from usual modeling of …scal policy rules in that there are time t …scal variables on the left-hand and right-hand sides of the rule. Bi and Kumhof …nd a large gain in welfare from an optimal simple rule which allows for transfers (or tax cuts) targeted to liquidity-constrained consumers to respond aggressively to the tax revenue gap. Motta and Tirelli (2012) …nd similar results. McKay and Reis (2013) …nd that institutional features of the U.S. transfer system, particularly unemployment insurance and safety-net programs, in the presence of rule-of-thumb consumers, may result in a certain degree of automatic stabilization. Since the empirical evidence points toward the importance of countercyclical transfer payments, more work in this direction may help to reconcile the theoretical and empirical literature in this area. One particular issue to take into account would be the way in which unemployment is modeled. Since countercyclical unemployment insurance payments can result in an elevated "outside option" during periods of labor market slack, countercyclical unemployment insurance payments may have two opposing e¤ects. One e¤ect would come through an increase in the outside option which would destabilize the economy, while an opposing e¤ect comes through an increase in the incomes of credit-constrained consumers which would stabilize the economy. The simulations of McKay and Reis (2013) suggest that, for the United States, the latter e¤ect wins out.

Understanding …scal multipliers and systematic …scal policy
The literature on …scal multipliers in the presence of systematic …scal policy has focused on the role of anticipated …scal reversals in determining the e¤ects of discretionary …scal policy. Leeper, Plante, and Traum (2010) include a multi-instrument …scal rule in a simple estimated DSGE model. Their model features a role for real government purchases and for distortionary taxes but not transfer payments. They …nd that the manner in which the public debt is stabilized may play an important role in determining the size and time path of …scal multipliers, with a tradeo¤ between the short-run and long-run e¤ects of consolidation. Leeper, Walker, and Yang (2010), Uhlig (2010), Drautzburg andUhlig (2011), andCoenen, Erceg, et al. (2012) also emphasize these short-run / long-run tradeo¤s. Corsetti, Meier, and Müller (2012) include in their model a simple …scal rule where the government adjusts purchases in response to debt levels. They …nd further evidence that systematic …scal policy can a¤ect the …scal multiplier-in particular, that an aggressive response of government spending to the public debt can increase the government spending multiplier in the short run. Their …ndings sit somewhat in con ‡ict with those of Leeper, Plante, and Traum (2010), which suggests that the choice of modeling assumptions may potentially play an important role in determining the multiplier e¤ects of …scal shocks under …scal rules.

Understanding the stabilizing e¤ects of government size
The theoretical literature on government size tends to line up well with the empirical literature. Galí (1994) shows that the RBC model produces mixed results when attempting to match the empirical relationship between government size and macroeconomic stability. On one hand, government purchases tend not to vary with the business cycle, and hence a larger government should stabilize total output (but not necessarily private consumption). On the other hand, a high tax rate should tend to destabilize the business cycle, which is not in line with the data. To reconcile this fact with theory, Andrés, Doménech, and Fatás (2008) include Keynesian rule-of-thumb consumers into an RBC model. Since consumers now consume partly out of current income, and current income is smoothed out through acyclical government purchases, private consumption is also smoothed out. Altogether, rule-of-thumb consumers help to bring the relatively small theoretical literature on government size into line with the empirical literature.

Informing the policy debate
Following the European debt crisis, an applied policy literature on systematic …scal policy has begun to develop. Some of these results echo results from the theoretical literature. With respect to output stabilization following the Great Recession, Coenen, Straub, and Trabandt (2012) estimate the …scal shocks to hit the Euro Area from 1985 onward, using an extensive multi-instrument …scal feedback rule. They …nd that discretionary anticyclical …scal measures (particularly an increase in transfer payments) may have provided a fair amount of stimulus during 2009. With respect to consolidation, Coenen, Mohr, and Straub (2008) point out a tradeo¤ between the short-run and long-run e¤ects of consolidation, in line with some of the literature on …scal multipliers. Studies on di¤erent consolidation scenarios include those of Papageorgiu (2012) for Greece, Stähler and Thomas (2012) for Spain, and Cogan, Taylor, Wieland, and Wolters (2013) for the United States. All of these studies argue that cuts should come to public consumption and not to public investment.
Other work has gone into evaluating the issues surrounding the implementation and likely e¤ects of proposed …scal rules. Wyplosz (2005Wyplosz ( , 2013 discusses the institutional issues inherent in implementing …scal rules, while Marattin and Marzo (2008) analyze the e¤ects of the Stability and Growth Pact and other rules on macroeconomic outcomes. The recent Fiscal Compact proposes a binding short-run debt-GDP target for the Eurozone, whereby member states reduce their debt ratios by 1/20 of the excess debt ratio over 60% per year. Barnes, Davidsson, and Rawdanowicz (2012) point out that such a rule, combined with preexisting rules such as the Excessive De…cit Procedure, would require a rapid degree of consolidation in the short run and a very low debt ratio in the long run. To mitigate the pain that this would cause, Snower, Burmeister, and Seidel (2011) propose an alternative …scal rule for the Euro Area countries which would allow for slower consolidation in the presence of strong anticyclical policy. In the German context, Truger and Will (2013) criticize Germany's debt brake as excessively procyclical, while Mayer and Stähler (2009) point out that a debt brake promotes less procyclicality in …scal policy than a stricter balanced budget rule. Altogether, the policy literature has addressed issues regarding consolidation and …scal rules using tools gained from the theoretical literature in particular. More work remains to be done to integrate the policy literature with the empirical literature.

Summary and conclusions
The main …ndings from the literature on systematic …scal policy could be distilled down to the following main points: 1. In most industrialized countries, including the United States, procyclical tax revenues (but not tax rates) and countercyclical transfer payments comprise the main share of anticyclical policy. Meanwhile, government purchases are acyclical.
2. In most industrialized countries, adjustments to taxes and possibly purchases, in that order, but not transfer payments, account for most …scal consolidation in response to the public debt.
3. A large government size and particularly a large welfare state appear to be associated with less output volatility in the cross section.
4. Most of the theoretical literature on systematic anticyclical …scal policy, meanwhile, has focused so far on procyclical tax rates and countercyclical government purchases, while recent work has begun to look more at transfer payments. More work remains to be done in order to better link this strand of the literature with the empirical literature, and this work must take the structure of labor markets into account. 5. Systematic …scal policy has important implications for the size and the time path of …scal multipliers because of anticipation e¤ects. 6. A rapidly-growing policy literature has begun to apply the insights found in the theoretical literature, in particular, toward the issues of consolidation and …scal rules. As with the theoretical literature, the policy literature can bene…t from a stronger link with the empirical literature.
In general, the literature on systematic …scal policy has had several successes and faces several challenges. Empirical work has made some progress in characterizing the basic timeseries behavior of …scal aggregates and in understanding the relationship between …scal policy and macroeconomic stability. Meanwhile, the theoretical literature has begun to focus less on purchases and taxes and more on transfer payments. Meanwhile, the insights from the theoretical literature in particular have begun to provide guidance toward researchers, particularly in Europe, who seek to understand the e¤ects of di¤erent possible …scal policy regimes. Altogether, the path forward seems to involve putting more quantitative structure onto future theoretical and policy-related work, to the extent that certain major patterns seem to hold in the data.