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Fiscal Stimulus and Distortionary Taxation

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  • Thorsten Drautzburg
  • Harald Uhlig

Abstract

We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark Smets-Wouters (2007) New Keynesian model, allowing for credit-constrained households, the zero lower bound, government capital and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.52 and modestly negative long-run multipliers around -0.42. The multiplier is sensitive to the fraction of transfers given to credit-constrained households, the duration of the zero lower bound and the capital. The stimulus results in negative welfare effects for unconstrained agents. The constrained agents gain, if they discount the future substantially.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17111.

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Date of creation: Jun 2011
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Handle: RePEc:nbr:nberwo:17111

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  1. Leeper, Eric M. & Plante, Michael & Traum, Nora, 2010. "Dynamics of fiscal financing in the United States," Journal of Econometrics, Elsevier, vol. 156(2), pages 304-321, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. On the ineffectiveness of a fiscal stimulus
    by Economic Logician in Economic Logic on 2012-01-09 15:16:00
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Cited by:
  1. Gunter Coenen & Roland Straub & Mathias Trabandt, 2012. "Fiscal Policy and the Great Recession in the Euro Area," American Economic Review, American Economic Association, vol. 102(3), pages 71-76, May.
  2. Günter Coenen & Roland Straub & Mathias Trabandt, 2012. "Gauging the effects of fiscal stimulus packages in the euro area," Working Paper Series 1483, European Central Bank.
  3. repec:ecb:ecbwps:20111429 is not listed on IDEAS
  4. Kaszab, Lorant, 2012. "Rule-of-Thumb Consumers and Labor Tax Cut Policy in the Zero Lower Bound," Cardiff Economics Working Papers E2012/13, Cardiff University, Cardiff Business School, Economics Section, revised Apr 2013.
  5. J. A. Carrillo & C. Poilly, 2012. "How do financial frictions affect the spending multiplier during a liquidity trap?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/779, Ghent University, Faculty of Economics and Business Administration.
  6. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld, 2012. "Fiscal Policy, Banks and the Financial Crisis," European Economy - Economic Papers 464, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  7. G�nter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & Ren� Lalonde & Douglas Laxton & Jesper Lind� & Annabelle Mourougane & Dirk Muir & Susanna Mursula & Ca, 2012. "Effects of Fiscal Stimulus in Structural Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 22-68, January.
  8. Julio Carrillo & Celine Poilly, 2013. "Online Appendix to "How do financial frictions affect the spending multiplier during a liquidity trap?"," Technical Appendices 12-54, Review of Economic Dynamics.

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