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Fiscal Policy and Economic Recovery

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  • Christina D Romer

Abstract

The American Recovery and Reinvestment Act of 2009 is the biggest, boldest countercyclical fiscal stimulus in American history. What is its likely impact? Current econometric models indicate that a tax cut is likely to have a multiplier of about 1.0 and that spending has a multiplier of about 1.6 after about 18 months. Even the most sophisticated econometric analysis, however, suffers from “omitted variable” bias. In trying to take account of this, David Romer and I have found that the tax multiplier is more likely to be around two to three; and we suspect that the spending multiplier is correspondingly higher than the conventional estimates. Of course, every recession is different. The unique factors of this recession are analyzed to determine whether the multipliers are likely to deviate from historical averages.Business Economics (2009) 44, 132–135. doi:10.1057/be.2009.14

Suggested Citation

  • Christina D Romer, 2009. "Fiscal Policy and Economic Recovery," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 44(3), pages 132-135, July.
  • Handle: RePEc:pal:buseco:v:44:y:2009:i:3:p:132-135
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    Cited by:

    1. Reinhard Neck & Dmitri Blueschke & Klaus Weyerstrass, 2011. "Optimal macroeconomic policies in a financial and economic crisis: a case study for Slovenia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(3), pages 435-459, July.
    2. Kirchner, Markus & Wijnbergen, Sweder van, 2016. "Fiscal deficits, financial fragility, and the effectiveness of government policies," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 51-68.
    3. Gabrisch, Hubert & Orlowski, Lucjan T. & Pusch, Toralf, 2012. "Sovereign default Risk in the Euro-Periphery and the Euro-Candidate Countries," MPRA Paper 41265, University Library of Munich, Germany.

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