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Fiscal stimulus and the promise of future spending cuts

  • Wieland, Volker

Recent evaluations of the fiscal stimulus packages enacted in 2009 in the United States and Europe such as Cogan, Cwik, Taylor and Wieland (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 Mueller (2009a,b) 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7615.

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Date of creation: Dec 2009
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Handle: RePEc:cpr:ceprdp:7615
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  1. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2010. "Cross-Border Spillovers from Fiscal Stimulus," International Journal of Central Banking, International Journal of Central Banking, vol. 6(1), pages 5-37, March.
  2. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
  3. John Cogan & Tobias Cwik & John Taylor & Volker Wieland, 2009. "New Keynesian Versus Old Keynesian Government Spending Multipliers," Discussion Papers 08-030, Stanford Institute for Economic Policy Research.
  4. Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
  5. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "Fiscal Stimulus with Spending Reversals," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 878-895, November.
  6. Tobias Cwik & Volker Wieland, 2011. "Keynesian government spending multipliers and spillovers in the euro area," Economic Policy, CEPR;CES;MSH, vol. 26(67), pages 493-549, 07.
  7. Robert J. Barro & Charles J. Redlick, 2009. "Macroeconomic Effects from Government Purchases and Taxes," NBER Working Papers 15369, National Bureau of Economic Research, Inc.
  8. Gernot Müller & Giancarlo Corsetti & André Meier, 2009. "Fiscal Stimulus with Spending Reversals," IMF Working Papers 09/106, International Monetary Fund.
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