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

  • John B. Taylor

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)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jel.49.3.686
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Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 49 (2011)
Issue (Month): 3 (September)
Pages: 686-702

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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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  1. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
  2. Ricardo Reis & Hyunseung Oh, 2011. "Targeted Transfers and the Fiscal Response to the Great Recession," Discussion Papers 1011-10, Columbia University, Department of Economics.
  3. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-85, September.
  4. Matthew D. Shapiro & Joel Slemrod, 2009. "Did the 2008 Tax Rebates Stimulate Spending?," American Economic Review, American Economic Association, vol. 99(2), pages 374-79, May.
  5. John Cogan & Tobias Cwik & John Taylor & Volker Wieland, 2009. "New Keynesian Versus Old Keynesian Government Spending Multipliers," Discussion Papers 08-030, Stanford Institute for Economic Policy Research.
  6. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
  7. Gramlich, Edward M, 1979. "Stimulating the Macro Economy through State and Local Governments," American Economic Review, American Economic Association, vol. 69(2), pages 180-85, May.
  8. Edward M. Gramlich, 1978. "State and Local Budgets the Day after It Rained: Why Is the Surplus So High?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(1), pages 191-216.
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