Fiscal Policy and Forecasting Real GDP

The macroeconomic effect of changes in tax revenue and government spending influences gross domestic product in an economy. The economic growth depends on real business cycle where fiscal policy takes the central role which is managed by the government. When there is a shock in the economy, government changes policy to stabilize the economy to control interest rate otherwise there will be budget deficit which declines economic growth. The purpose of this study is to examine the effect of tax revenue and government spending on the economic growth and forecasting of gross domestic product in the United State. I carefully assess the fiscal interaction on the economic growth using Box- Jenkins methodology from the period 1947q2-2020q4, I select the best autoregressive integrated moving average (1,0,1) model to solve the research problem. The data considered for this study is large enough and the fitted model indicates reliable forecasting for the next quarters.