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Commentary: Fiscal Stimulus and the Promise of Future Spending Cuts

Listed author(s):
  • Volker Wieland

    (Goethe University of Frankfurt)

Recent evaluations of the fiscal stimulus packages enacted in 2009 in the United States and Europe such as Cogan et al. (2009) and Cwik and Wieland (2009) suggest that the GDP effects will be modest due to crowding out of private consumption and investment. Corsetti, Meier, and Müller (2009, 2010) argue that spending shocks are typically followed by consolidations with substantive spending cuts, which enhance the short-run stimulus effect. This note investigates the implications of this argument for the estimated impact of recent stimulus packages and the case for discretionary fiscal policy.

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Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 6 (2010)
Issue (Month): 1 (March)
Pages: 39-50

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Handle: RePEc:ijc:ijcjou:y:2010:q:1:a:2
Contact details of provider: Web page: http://www.ijcb.org/

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  1. Jordi Galí & J. David López-Salido & Javier Vallés, 2005. "Understanding the Effects of Government Spending on Consumption," NBER Working Papers 11578, National Bureau of Economic Research, Inc.
  2. Cwik, Tobias J. & Wieland, Volker, 2009. "Keynesian government spending multipliers and spillovers in the Euro area," CFS Working Paper Series 2009/25, Center for Financial Studies (CFS).
  3. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  4. Robert Barro, 2011. "Macroeconomic Effects from Government Purchases and Taxes," Annual Meeting Plenary 2011-1, Society for Economic Dynamics.
  5. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
  6. Gernot Müller & Giancarlo Corsetti & Andre Meier, 2009. "Fiscal Stimulus with Spending Reversals," IMF Working Papers 09/106, International Monetary Fund.
  7. Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
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