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Means-Tested Subsidies and Economic Performance Since 2007

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  • Casey B. Mulligan

Abstract

The aggregate neoclassical growth model - with means-tested subsidies whose replacement rates began rising at the end of 2007 as its only impulse - produces time series for aggregate labor usage, consumption, investment, and real GDP that closely resemble actual U.S. time series. Despite having no explicit financial market, the model has investment fall steeply during the recession not because of any distortions with the supply of capital, but merely because labor is falling and labor is complementary with capital in the production function. Through the lens of the model, the fact that real consumption fell significantly below trend during 2008 suggests that labor usage per capita is expected to remain well below pre-recession levels for several years.

Suggested Citation

  • Casey B. Mulligan, 2011. "Means-Tested Subsidies and Economic Performance Since 2007," NBER Working Papers 17445, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17445
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    Cited by:

    1. Kyle Herkenhoff & Lee Ohanian, 2019. "The Impact of Foreclosure Delay on U.S. Employment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 63-83, January.
    2. Casey B. Mulligan, 2012. "Do Welfare Policies Matter for Labor Market Aggregates? Quantifying Safety Net Work Incentives since 2007," NBER Working Papers 18088, National Bureau of Economic Research, Inc.
    3. Kyle F. Herkenhoff & Lee E. Ohanian, 2012. "Foreclosure delay and U.S. unemployment," Working Papers 2012-017, Federal Reserve Bank of St. Louis.
    4. Casey B. Mulligan, 2011. "Rising Labor Productivity during the 2008-9 Recession," NBER Working Papers 17584, National Bureau of Economic Research, Inc.
    5. Kyle F. Herkenhoff, 2012. "Informal unemployment insurance and labor market dynamics," Working Papers 2012-057, Federal Reserve Bank of St. Louis.
    6. Casey B. Mulligan, 2011. "The Expanding Social Safety Net," NBER Working Papers 17654, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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