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Activist Fiscal Policy

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  • Alan J. Auerbach
  • William G. Gale
  • Benjamin H. Harris

Abstract

During and after the "Great Recession" that began in December 2007, the U.S. federal government enacted several rounds of activist fiscal policy. In this paper, we review the recent evolution of thinking and evidence regarding the effectiveness of activist fiscal policy. Although fiscal interventions aimed at stimulating and stabilizing the economy have returned to common use, their efficacy remains controversial. We review the debate about the traditional types of fiscal policy interventions, such as broad-based tax cuts and spending increases, as well as more targeted policies. While there have been improvements in estimates of the effects of broad-based policies, much of what has been learned recently concerns how such multipliers might vary with respect to economic conditions, such as the credit market disruptions and very low interest rates that were central features of the Great Recession. The eclectic and innovative interventions by the Federal Reserve and other central banks during this period highlight the imprecise divisions between monetary and fiscal policy and the many channels through which fiscal policies can be implemented.

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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 24 (2010)
Issue (Month): 4 (Fall)
Pages: 141-64

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Handle: RePEc:aea:jecper:v:24:y:2010:i:4:p:141-64

Note: DOI: 10.1257/jep.24.4.141
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Cited by:
  1. Steinar Holden & Victoria Sparrman, 2011. "Do Government Purchases Affect Unemployment?," CESifo Working Paper Series 3482, CESifo Group Munich.
  2. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral Economics and Macroeconomic Models," Finance and Economics Discussion Series 2014-43, Board of Governors of the Federal Reserve System (U.S.).
  3. Mitra, Kaushik & Evans, George W. & Honkapohja, Seppo, 2013. "Policy change and learning in the RBC model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(10), pages 1947-1971.
  4. Steinar Holden, 2012. "Implications of insights from behavioral economics for macroeconomic models," Working Paper 2012/12, Norges Bank.
  5. Choi, Woon Gyu & Cook, David, 2012. "Fire sales and the financial accelerator," Journal of Monetary Economics, Elsevier, vol. 59(4), pages 336-351.
  6. Tomas Hellebrandt & Adam S. Posen & Marilyne Tolle, 2012. "Does Monetary Cooperation or Confrontation Lead to Successful Fiscal Consolidation?," Policy Briefs PB12-8, Peterson Institute for International Economics.
  7. Aldy, Joseph Edgar, 2011. "A Preliminary Review of the American Recovery and Reinvestment Act’s Clean Energy Package," Scholarly Articles 5688917, Harvard Kennedy School of Government.
  8. João Sousa Andrade & Adelaide Duarte, 2011. "The Fundamentals of the Portuguese Crisis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(2), pages 195-218, June.
  9. Willem Karel M. Brauers & Romualdas Ginevičius & Askoldas Podviezko, 2014. "Development of a Methodology of Evaluation of Financial Stability of Commercial Banks," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(3), pages 349-367, June.
  10. Douglas Sutherland & Peter Hoeller & Rossana Merola, 2012. "Fiscal Consolidation: Part 1. How Much is Needed and How to Reduce Debt to a Prudent Level?," OECD Economics Department Working Papers 932, OECD Publishing.
  11. Hristov, Atanas, 2012. "The Effects of Discretionary Fiscal Stimulus: A Survey," MPRA Paper 44714, University Library of Munich, Germany.

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