The Dark Side of Fiscal Stimulus

Konferenzbeitrag

The output multiplier turns negative before a deficit spending program expires. We show the generality of this unpleasant finding for the standard real business cycle model. We then calibrate an extended model for the US and demonstrate how fiscal stimulus slows down economic recovery from recession in the medium-run. We discuss the slowdown from recovery w.r.t. alternative assumptions about the size and persistence of the initial shock (severity of the recession), the assumed power of the impact multiplier, and the scale and duration of the stimulus program. We also show that results are quantitatively very similar independent from whether a recession was caused by an efficiency wedge (input-financing frictions) or a labor wedge (labor market frictions). Capital stock and output are always below their laissez-faire level of recovery when fiscal stimulus expires.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2011: Die Ordnung der Weltwirtschaft: Lektionen aus der Krise - Session: Fiscal Stimulus ; No. G2-V2

Classification and Topics

• Classification: Wirtschaft ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General ; Fiscal Policies and Behavior of Economic Agents: General ; Economic Growth and Aggregate Productivity: General
• Subject: fiscal stimulus ; government spending ; output multiplier ; economic recovery

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Trimborn, Timo ; Strulik, Holger
• Event: Veröffentlichung
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/48725
• Last update: 10.03.2025, 11:45 AM CET