The dark side of fiscal stimulus

Arbeitspapier

Most of the discussion about fiscal stimulus focuses on the multiplier of government spending on impact. In this paper we shift the focus to the multiplier at the end, i.e. to the period in which a deficit spending program terminates. We show that recent time series analyses as well as economic models of different schools of thought predict that the multiplier turns negative before spending expires. This means that aggregate output at the time of expiry of fiscal stimulus is predicted to be lower than it could be without deficit spending. We set up a simple model that explains this phenomenon. Using phase diagram analysis we prove that the aggregate capital stock at the time of expiry of fiscal stimulus is lower than it would be without the deficit spending program. This fact explains why aggregate output is below its laissez faire level as well. We then calibrate an extended version of the model for the US and demonstrate how fiscal stimulus slows down recovery from a recession in the medium-run.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: cege Discussion Papers ; No. 150

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: fiscal stimulus ; government spending ; output multiplier ; economic recovery

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Strulik, Holger ; Trimborn, Timo
• Ereignis: Veröffentlichung
• (wer): University of Göttingen, Center for European, Governance and Economic Development Research (cege)
• (wo): Göttingen
• (wann): 2013

Weitere Informationen

• Handle: http://hdl.handle.net/10419/70210
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ