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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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17445.

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Date of creation: Sep 2011
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Handle: RePEc:nbr:nberwo:17445

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  1. Xavier Sala-i-Martín & Elsa V. Artadi, 2003. "Economic growth and investment in the Arab world," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 683, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Casey B. Mulligan, 2002. "A Century of Labor-Leisure Distortions," NBER Working Papers 8774, National Bureau of Economic Research, Inc.
  3. Robert J. Barro, 2003. "Determinants of Economic Growth in a Panel of Countries," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 505, China Economics and Management Academy, Central University of Finance and Economics.
  4. Michael W. L. Elsby & Bart Hobijn & Aysegul Sahin, 2010. "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 1-69.
  5. Casey B. Mulligan, 2004. "What do Aggregate Consumption Euler Equations Say about the Capital Income Tax Burden?," NBER Working Papers 10262, National Bureau of Economic Research, Inc.
  6. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
  7. Xavier Sala-i-Martin & Elsa V. Artadi, 2003. "The economic tragedy of the XXth century: Growth in Africa," Discussion Papers, Columbia University, Department of Economics 0203-17, Columbia University, Department of Economics.
  8. Casey Mulligan, 2009. "What Caused the Recession of 2008? Hints from Labor Productivity," NBER Working Papers 14729, National Bureau of Economic Research, Inc.
  9. Plumper, Thomas & Martin, Christian W, 2003. " Democracy, Government Spending, and Economic Growth: A Political-Economic Explanation of the Barro-Effect," Public Choice, Springer, Springer, vol. 117(1-2), pages 27-50, October.
  10. Jermann, Urban & Quadrini, Vincenzo, 2009. "Macroeconomic Effects of Financial Shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7451, C.E.P.R. Discussion Papers.
  11. Song Han & Wenli Li, 2007. "Fresh Start or Head Start? The Effects of Filing for Personal Bankruptcy on Work Effort," Journal of Financial Services Research, Springer, Springer, vol. 31(2), pages 123-152, June.
  12. Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.
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Cited by:
  1. Casey B. Mulligan, 2011. "The Expanding Social Safety Net," NBER Working Papers 17654, National Bureau of Economic Research, Inc.
  2. Kyle F. Herkenhoff & Lee Ohanian, 2012. "Foreclosure delay and U.S. unemployment," Working Papers, Federal Reserve Bank of St. Louis 2012-017, Federal Reserve Bank of St. Louis.
  3. 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.
  4. Casey B. Mulligan, 2011. "Rising Labor Productivity during the 2008-9 Recession," NBER Working Papers 17584, National Bureau of Economic Research, Inc.

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