  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 revenue shocks. We apply causal machine learning
strategies and implement the post-double-selection LASSO estimator to identify
the causal effect of revenue shocks on public finances. We show that local
policymakers overall predominantly smooth fiscal shocks. However, we also find
some patterns consistent with fiscal conservatism, where positive shocks are
smoothed, while negative ones are mitigated by spending cuts.
