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On the ease of overstating the fiscal stimulus in the US, 2008-9

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  • Aizenman, Joshua
  • Pasricha, Gurnain Kaur

Abstract

This note shows that the aggregate fiscal expenditure stimulus in the United States, properlyadjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. Whilethe Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it didnot stimulate the aggregate expenditure above its predicted mean. We discuss the implicationsof limitations on states' ability to run deficits for the design of fiscal stimulus at the federal level.We devote particular attention to intertemporal moral hazard concerns in a federal fiscal system,and ways to address these concerns.

Suggested Citation

  • Aizenman, Joshua & Pasricha, Gurnain Kaur, 2010. "On the ease of overstating the fiscal stimulus in the US, 2008-9," Santa Cruz Department of Economics, Working Paper Series qt5rf688t2, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt5rf688t2
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    1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82, National Bureau of Economic Research, Inc.
    2. Clemente, Jesus & Montanes, Antonio & Reyes, Marcelo, 1998. "Testing for a unit root in variables with a double change in the mean," Economics Letters, Elsevier, vol. 59(2), pages 175-182, May.
    3. Aizenman, Joshua, 1992. "Competitive Externalities and the Optimal Seigniorage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 61-71, February.
    4. von Hagen, Jurgen & Eichengreen, Barry, 1996. "Federalism, Fiscal Restraints, and European Monetary Union," American Economic Review, American Economic Association, vol. 86(2), pages 134-138, May.
    5. Carlos De Resende & René Lalonde & Stephen Snudden, 2010. "The Power of Many: Assessing the Economic Impact of the Global Fiscal Stimulus," Discussion Papers 10-1, Bank of Canada.
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    1. Aizenman Joshua & Pasricha Gurnain K., 2011. "The Net Fiscal Expenditure Stimulus in the US, 2008-9: Less than What You Might Think, and Less than the Fiscal Stimuli of Most OECD Countries," The Economists' Voice, De Gruyter, vol. 8(2), pages 1-6, June.
    2. Glenn Follette & Byron Lutz, 2010. "Fiscal Policy in the United States: Automatic Stabilizers, Discretionary Fiscal Policy Actions, and the Economy," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 48(1), pages 41-73, Junio.
    3. Saeid Mahdavi & Emmanuel Alanis, 2013. "Public expenditures and the unemployment rate in the American states: panel evidence," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2926-2937, July.
    4. Cristina Arellano & Andrew Atkeson & Mark Wright, 2016. "External and Public Debt Crises," NBER Macroeconomics Annual, University of Chicago Press, vol. 30(1), pages 191-244.
    5. Handler, Heinz, 2013. "The eurozone: piecemeal approach to an optimum currency area," MPRA Paper 67183, University Library of Munich, Germany.
    6. Virkola, Tuomo, 2014. "Fiscal Federalism in Four Federal Countries," ETLA Reports 38, The Research Institute of the Finnish Economy.
    7. Duffy, David & McQuinn, Kieran & Morley, Ciara, 2015. "Quarterly Economic Commentary, Autumn 2015," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20153, march.
    8. McQuinn, Kieran, 2015. "European Fiscal Policy During the Crisis: An Irish Perspective," Research Notes RN2015/3/3, Economic and Social Research Institute (ESRI).
    9. James R. Hines Jr., 2010. "State Fiscal Policies and Transitory Income Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 313-350.

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    More about this item

    Keywords

    Social and Behavioral Sciences; fiscal union; federal fiscal expenditure; fiscal policy; moral hazard;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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