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An Empirical Analysis of the Revival of Fiscal Activism in the 2000s

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  • John B. Taylor

Abstract

An empirical review of the three fiscal stimulus packages of the 2000s shows that they had little if any direct impact on consumption or government purchases. Households largely saved the transfers and tax rebates. The federal government only increased purchases by a small amount. State and local governments saved their stimulus grants and shifted spending away from purchases to transfers. Counterfactual simulations show that the stimulus-induced decrease in state and local government purchases was larger than the increase in federal purchases. Simulations also show that a larger stimulus package with the same design as the 2009 stimulus would not have increased government purchases or consumption by a larger amount. These results raise doubts about the efficacy of such packages adding weight to similar assessments reached more than thirty years ago. (JEL E21, E23, E32, E62, H50)

Suggested Citation

  • John B. Taylor, 2011. "An Empirical Analysis of the Revival of Fiscal Activism in the 2000s," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 686-702, September.
  • Handle: RePEc:aea:jeclit:v:49:y:2011:i:3:p:686-702
    Note: DOI: 10.1257/jel.49.3.686
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jonathan A. Parker, 2011. "On Measuring the Effects of Fiscal Policy in Recessions," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 703-718, September.
    2. Klaus Abberger & Biswa Nath Bhattacharyay & Chang Woon Nam & Gernot Nerb & Siegfried Schönherr, 2014. "How Can the Crisis Vulnerability of Emerging Economies Be Reduced?," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 65, October.
    3. repec:bla:coecpo:v:35:y:2017:i:2:p:312-330 is not listed on IDEAS
    4. Wendy Carlin, 2013. "Real Exchange Rate Adjustment, Wage-Setting Institutions, and Fiscal Stabilization Policy: Lessons of the Eurozone's First Decade," CESifo Economic Studies, CESifo, vol. 59(3), pages 489-519, September.
    5. John B. Taylor, 2014. "The Role of Policy in the Great Recession and the Weak Recovery," American Economic Review, American Economic Association, vol. 104(5), pages 61-66, May.
    6. J. Bradford DeLong & Lawrence H. Summers, 2012. "Fiscal Policy in a Depressed Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 233-297.
    7. Gerald A. Carlino & Robert P. Inman, 2013. "Macro fiscal policy in economic unions: states as agents," Working Papers 13-40, Federal Reserve Bank of Philadelphia.
    8. Pascal Michaillat & Emmanuel Saez, 2015. "The Optimal Use of Government Purchases for Macroeconomic Stabilization," Discussion Papers 1515, Centre for Macroeconomics (CFM).
    9. Pascal Michaillat & Emmanuel Saez, 2015. "The Optimal Use of Government Purchases for Stabilization," NBER Working Papers 21322, National Bureau of Economic Research, Inc.
    10. Fazzari Steven M. & Morley James & Panovska Irina, 2015. "State-dependent effects of fiscal policy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(3), pages 285-315, June.
    11. Makin, Anthony J. & Narayan, Paresh Kumar & Narayan, Seema, 2014. "What expenditure does Anglosphere foreign borrowing fund?," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 63-78.
    12. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611.
    13. Diego E. Vacaflores, 2013. "Monetary Transfers in the U.S.: How Efficient Are Tax Rebates?," Economies, MDPI, Open Access Journal, vol. 1(3), pages 1-23, November.
    14. Felix Reichling & Charles Whalen, 2015. "The Fiscal Multiplier and Economic Policy Analysis in the United States: Working Paper 2015-02," Working Papers 49925, Congressional Budget Office.
    15. Kent Matthews, 2013. "No Plan B: But is There a ‘Third Way'?," Economic Affairs, Wiley Blackwell, vol. 33(2), pages 220-231, June.
    16. Fazzari Steven M. & Morley James & Panovska Irina, 2015. "State-dependent effects of fiscal policy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(3), pages 285-315, June.
    17. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314, April.
    18. Dilla, Diana, 2017. "Staatsverschuldung und Verschuldungsmentalität
      [Public Debt and Debt Mentality]
      ," MPRA Paper 79432, University Library of Munich, Germany.
    19. 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.
    20. repec:eee:ecmode:v:64:y:2017:i:c:p:270-287 is not listed on IDEAS
    21. Hong, Kiseok & Tang, Hsiao Chink, 2012. "Crises in Asia: Recovery and policy responses," Journal of Asian Economics, Elsevier, vol. 23(6), pages 654-668.
    22. Felix Reichling & Charles Whalen, 2012. "Assessing the Short-Term Effects on Output of Changes in Federal Fiscal Policies: Working Paper 2012-08," Working Papers 43278, Congressional Budget Office.
    23. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    24. Robert Pollin & James Heintz, 2013. "Study of U.S. Financial System," FESSUD studies fstudy10, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    25. Sinclair Davidson & Ashton de Silva, 2013. "Stimulating Savings: An Analysis of Cash Handouts in Australia and the United States," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 20(2), pages 39-60.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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