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Fiscal Stimulus and Distortionary Taxation

Listed author(s):
  • Thorsten Drautzburg

    (Federal Reserve Bank of Philadelphia)

  • Harald Uhlig

    (University of Chicago)

We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark medium-scale New Keynesian model, allowing for credit-constrained households, the zero lower bound, government capital, and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.53 and modestly negative long-run multipliers around −0.36. We compare and relate recent literature multiplier calculations to ours. We explain the central empirical findings with the help of a simple three equation New Keynesian model with sticky wages and credit-constrained households. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2015.09.003
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 18 (2015)
Issue (Month): 4 (October)
Pages: 894-920

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Handle: RePEc:red:issued:14-44
DOI: 10.1016/j.red.2015.09.003
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