Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Is Fiscal Stimulus a Good Idea?

Is Fiscal Stimulus a Good Idea? Abstract The results in this paper, using a structural multicountry macroeconometric model, suggest that there is at most a small gain from fiscal stimulus in the form of increased transfer payments or increased tax deductions if the increased debt generated must eventually be paid back. The gain in output and employment on the way up is roughly offset by the loss in output and employment on the way down as the debt from the initial stimulus is paid off. This conclusion is robust to different assumptions about monetary policy. To the extent that there is a gain, the longer one waits to begin paying the debt back the better. Possible caveats regarding the model used are that (1) monetary policy is not powerful enough to keep the economy at full employment, (2) potential output is taken to be exogenous, (3) possible permanent effects on asset prices and animal spirits from a stimulus are not taken into account, and (4) the model does not have the feature that in really bad times the economy might collapse without a stimulus. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Business Economics Springer Journals

Is Fiscal Stimulus a Good Idea?

Fair, Ray C
Business Economics , Volume 49 (4): 9 – Oct 1, 2014
Download PDF
9 pages

Loading next page...
 
/lp/springer-journals/is-fiscal-stimulus-a-good-idea-B6l1cQhlql

References (22)

Publisher
Springer Journals
Copyright
2014 National Association for Business Economics
ISSN
0007-666X
eISSN
1554-432X
DOI
10.1057/be.2014.27
Publisher site
See Article on Publisher Site

Abstract

Abstract The results in this paper, using a structural multicountry macroeconometric model, suggest that there is at most a small gain from fiscal stimulus in the form of increased transfer payments or increased tax deductions if the increased debt generated must eventually be paid back. The gain in output and employment on the way up is roughly offset by the loss in output and employment on the way down as the debt from the initial stimulus is paid off. This conclusion is robust to different assumptions about monetary policy. To the extent that there is a gain, the longer one waits to begin paying the debt back the better. Possible caveats regarding the model used are that (1) monetary policy is not powerful enough to keep the economy at full employment, (2) potential output is taken to be exogenous, (3) possible permanent effects on asset prices and animal spirits from a stimulus are not taken into account, and (4) the model does not have the feature that in really bad times the economy might collapse without a stimulus.

Journal

Business Economics – Springer Journals

Published: Oct 1, 2014

There are no references for this article.