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On the ease of overstating the fiscal stimulus in the US, 2008-9

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  • Aizenman, Joshua
  • Pasricha, Gurnain Kaur

Abstract

This note shows that the aggregate fiscal expenditure stimulus in the United States, properlyadjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. Whilethe Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it didnot stimulate the aggregate expenditure above its predicted mean. We discuss the implicationsof limitations on states' ability to run deficits for the design of fiscal stimulus at the federal level.We devote particular attention to intertemporal moral hazard concerns in a federal fiscal system,and ways to address these concerns.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt5rf688t2.

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Date of creation: 02 Feb 2010
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Handle: RePEc:cdl:ucscec:qt5rf688t2

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Related research

Keywords: Social and Behavioral Sciences; fiscal union; federal fiscal expenditure; fiscal policy; moral hazard;

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References

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  1. Carlos de Resende & René Lalonde & Stephen Snudden, 2010. "The Power of Many: Assessing the Economic Impact of the Global Fiscal Stimulus," Discussion Papers 10-1, Bank of Canada.
  2. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  3. Clemente, Jesus & Montanes, Antonio & Reyes, Marcelo, 1998. "Testing for a unit root in variables with a double change in the mean," Economics Letters, Elsevier, vol. 59(2), pages 175-182, May.
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Cited by:
  1. Glenn Follette & Byron Lutz, 2010. "Fiscal policy in the United States: automatic stabilizers, discretionary fiscal policy actions, and the economy," Finance and Economics Discussion Series 2010-43, Board of Governors of the Federal Reserve System (U.S.).
  2. Aizenman, Joshua & Pasricha, Gurnain, 2011. "The Net Fiscal Expenditure Stimulus in the U.S., 2008-9: Less than What You Might Think, and Less than the Fiscal Stimuli of Most OECD Countries," Santa Cruz Department of Economics, Working Paper Series qt9sr9m8wt, Department of Economics, UC Santa Cruz.
  3. Heinz Handler, 2013. "The Eurozone: Piecemeal Approach to an Optimum Currency Area," WIFO Working Papers 446, WIFO.
  4. James R. Hines Jr., 2010. "State Fiscal Policies and Transitory Income Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 313-350.

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