Fiscal Stimulus with Spending Reversals
AbstractThe impact of fiscal stimulus depends not only on short-term tax and spending policies, but also on expectations about offsetting measures in the future. This paper analyzes the effects of an increase in government spending under a plausible debt-stabilizing policy that links current stimulus to a subsequent period of spending restraint. Accounting for such spending reversals brings an otherwise standard new Keynesian model in line with the stylized facts of fiscal transmission, including the crowding-in of consumption and the ''puzzle'' of real exchange rate depreciation. Time series evidence for the U.S. supports the empirical relevance of spending reversals.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 09/106.
Date of creation: 01 May 2009
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Other versions of this item:
- Corsetti, Giancarlo & Meier, André & Müller, Gernot, 2009. "Fiscal Stimulus with spending reversals," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7302, C.E.P.R. Discussion Papers.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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- Fabio Canova & Evi Pappa, 2003.
"Price differentials in monetary unions: The role of fiscal shocks,"
Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra
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- Fabio Canova & Evi Pappa, 2007. "Price Differentials in Monetary Unions: The Role of Fiscal Shocks," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(520), pages 713-737, 04.
- Olivier Blanchard & Roberto Perotti, 2002.
"An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output,"
The Quarterly Journal of Economics, MIT Press,
MIT Press, vol. 117(4), pages 1329-1368, November.
- Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
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