Fiscal stimulus: A neoclassical perspective

Arbeitspapier

Can a large-scale defcit spending program speed up recovery after recession? To answer that question we calibrate a standard neoclassical growth model with US data and assume that an exogenous shock has driven aggregate output far below steady-state level. We calibrate the model such that a permanent increase of government expenditure is effective in raising output. We then show that 'fiscal stimulus', i.e. a temporary increase of government expenditure is not only ineffective but detrimental. Even before the spending program expires, aggregate output is lower than it could be without fiscal stimulus. We show the generality of this result w.r.t. size and persistence of the shock, size of the government spending multiplier, and the scale and duration of the stimulus program. Using a phase diagram we provide the economic intuition for our unpleasant finding and explain why, generally, private capital stock reaches its lowest level when a deficit spending program expires. We also show how an accompanying temporary cut of capital income taxes helps to prevent the negative repercussion of deficit spending on economic recovery.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Diskussionsbeitrag ; No. 421

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General ; Fiscal Policies and Behavior of Economic Agents: General ; National Government Expenditures and Related Policies: General ; Economic Growth and Aggregate Productivity: General
• Thema: deficit spending ; government spending multiplier ; economic recovery ; economic ; growth. ; Antizyklische Finanzpolitik ; Finanzpolitik ; Schock ; Multiplikator ; Wirkungsanalyse ; Wachstumstheorie ; Investition ; Neoklassik ; Theorie ; USA

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Strulik, Holger ; Trimborn, Timo
• Ereignis: Veröffentlichung
• (wer): Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät
• (wo): Hannover
• (wann): 2009

Weitere Informationen

• Handle: http://hdl.handle.net/10419/37123
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ