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Fiscal Policy in the Aftermath of 9/11

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  • Eichenbaum, Martin
  • Fisher, Jonas D M

Abstract

This paper investigates the nature of U.S. fiscal policy in the aftermath of 9/11. We argue that the recent declines in the government surplus and tax rates cannot be accounted for by either the state of the U.S. economy as of 9/11 or as the typical response of fiscal policy to a large exogenous rise in military expenditures. Our evidence suggests that, had tax rates responded in the way they "normally" do to a large fiscal shock, aggregate output would have been lower and the surplus would not have changed by much. Our results do not bear directly on the desirability of the decline in tax rates or the surplus after 9/11.

Suggested Citation

  • Eichenbaum, Martin & Fisher, Jonas D M, 2005. "Fiscal Policy in the Aftermath of 9/11," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 1-22, February.
    • Handle: RePEc:mcb:jmoncb:v:37:y:2005:i:1:p:1-22
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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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