The Macroeconomic Effects of Fiscal Policy: Evidence from Computational Text Analysis of the Debates in the Bundestag

• Applicants: Professor Dr. Peter Tillmann; Professor Dr. Peter Winker
• Subject Area: Statistics and Econometrics ; Economic Policy, Applied Economics
• Term: since 2021
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 460311167

Standard macroeconomic models suggest that fiscal policy, i.e. government spending and taxation, is an important driver of economic activity. Empirically, however, both the size and the sign of the effect of fiscal policy on the economy remain controversial. The aim of this project is to improve our knowledge about the effects of fiscal policy in Germany. We revisit the roots of fiscal policy-making, i.e. the parliamentary process. We use two novel data sets on parliamentary speeches and newspaper reporting, respectively, and apply methods from computational text analysis which – to the best of our knowledge - have not been used to study fiscal policy before. This allows us to improve the measurement and the identification of fiscal policy impulses. We exploit a large data set that contains the digitized speeches in the German Bundestag since September 9th, 1949. We augment this parliamentary data with newspaper data from the digitized archive of the Frankfurter Allgemeine Zeitung to cover the public debate about fiscal policy. Based on a number of keywords, we will obtain 220,000 articles on German fiscal policy. We are the first to use this data for an analysis of fiscal policy.The project combines the application of modern computational text analysis to the data set mentioned before with an analysis of the macroeconomic consequences of fiscal policy. This allows us to identify a series of unexpected changes in (i) the tone of the parliamentary debate of fiscal policy and (ii) the extent of disagreement about policy expressed in newspaper reporting. We will estimate the effect of both shocks on business cycle variables such as income, employment, consumption and investment.

• DFG Programme: Research Grants