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The Case Against the Case Against Discretionary Fiscal Policy

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  • Alan S. Blinder

    (Princeton University)

Abstract

Times change. When I was introduced to macroeconomics as a Princeton University freshman in 1963, fiscal policy and by that I mean discretionary fiscal stabilization policy was all the rage. The policy idea that would eventually become the Kennedy- Johnson tax cuts was the new, new thing. In those days, discussions of monetary policy often fell into the oh, by the way category, with a number of serious economists and others apparently believing that monetary policy was not a particularly useful tool for stabilization policy.1 The appropriate role for central bank policy was often said to be “accommodating” fiscal policy, which was cast in the lead role.2 Thus many people, probably including President Kennedy, thought that Walter Heller, who was then chairman of the Council of Economic Advisers, was more instrumental to stabilization policy than William McChesney Martin, who was then chairman of the Federal Reserve Board. Indeed, it was said that Kennedy only remembered that Martin was in charge of monetary policy by the fact that both words began with the letter M.

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Bibliographic Info

Paper provided by Princeton University, Department of Economics, Center for Economic Policy Studies. in its series Working Papers with number 102.

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Date of creation: Jun 2004
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Handle: RePEc:pri:cepsud:100blinder

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  1. Matthew D. Shapiro & Joel Slemrod, 1993. "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding," NBER Working Papers 4344, National Bureau of Economic Research, Inc.
  2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  3. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
  4. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  5. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
  6. Robert J. Gordon, 1986. "Front matter, The American Business Cycle. Continuity and Change," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages -15 National Bureau of Economic Research, Inc.
  7. Alan S. Blinder & Angus Deaton, 1985. "The Time Series Consumption Function Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 465-521.
  8. Bernanke, Ben S, 2000. "Comment on America's Historical Experience with Low Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 994-97, November.
  9. Barro, Robert J, 1981. "Output Effects of Government Purchases," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1086-1121, December.
  10. Blinder, Alan S, 1981. "Temporary Income Taxes and Consumer Spending," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 26-53, February.
  11. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
  12. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  13. Matthew D. Shapiro & Joel Slemrod, 2003. "Consumer Response to Tax Rebates," American Economic Review, American Economic Association, vol. 93(1), pages 381-396, March.
  14. Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July.
  15. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  16. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
  17. Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 24-85, Wharton School Rodney L. White Center for Financial Research.
  18. Chang-Tai Hsieh, 2003. "Do Consumers React to Anticipated Income Changes? Evidence from the Alaska Permanent Fund," American Economic Review, American Economic Association, vol. 93(1), pages 397-405, March.
  19. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, Octomber.
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Cited by:
  1. Farrell, Henry & Quiggin, John, 2011. "Concensus, Dissensus and Economic Ideas: The Rise and Fall of Keynesianism During the Economic Crisis," Risk and Sustainable Management Group Working Papers 151527, University of Queensland, School of Economics.
  2. Virkola, Tuomo, 2014. "Exchange Rate Regime, Fiscal Foresight and the Effectiveness of Fiscal Policy in a Small Open Economy," ETLA Reports 20, The Research Institute of the Finnish Economy.
  3. Nicola Acocella, . "The theoretical roots of EMU institutions and policies during the crisis," Working Papers 126/14, Sapienza University of Rome, Metodi e modelli per l'economia, il territorio e la finanza MEMOTEF.
  4. Sacchi, Agnese & Salotti, Simone, 2014. "The impact of national fiscal rules on the stabilisation function of fiscal policy," MPRA Paper 56982, University Library of Munich, Germany.
  5. Leif Lybecker Eskesen, 2009. "The Role for Counter-Cyclical Fiscal Policy in Singapore," IMF Working Papers 09/8, International Monetary Fund.
  6. Hristov, Atanas, 2012. "The Effects of Discretionary Fiscal Stimulus: A Survey," MPRA Paper 44714, University Library of Munich, Germany.
  7. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.

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