IDEAS home Printed from
   My bibliography  Save this paper

Fiscal Stimulus--Is More Needed?


  • Dimitri B. Papadimitriou
  • Greg Hannsgen
  • Gennaro Zezza


In its November 2007 Strategic Analysis, the Levy Institute's Macro-Modeling Team called for an immediate, sustained fiscal stimulus of 2 percent of GDP, as well as a plan for a much larger additional fiscal stimulus should the economic slowdown continue over the next two to three years. Since then, conditions have significantly worsened. Foreclosures reached an all-time high late last year, and home prices have continued to fall. According to Federal Reserve flow-of-funds data, household net worth declined by over $500 billion in the fourth quarter alone. In response, Congress approved a $168 billion stimulus package earlier this year, one made up largely of tax rebates that will begin arriving in May. While the authorities have not declared a recession in progress, many economists have begun to speculate how steep a possible downturn might be. In this latest Strategic Analysis, President Dimitri B. Papadimitriou and Senior Scholars Greg Hannsgen and Gennaro Zezza explore the possibility of an additional fiscal stimulus of about $450 billion spread over three quarters, challenging the notion that a larger and more prolonged additional stimulus will be unnecessary and generate inflationary pressures. They find that, given a projection of even a moderate recession, an additional $600 billion stimulus would not be too much. They also find that a temporary stimulus—even one lasting four quarters—will have only a temporary effect. An enduring recovery will depend on a prolonged increase in exports, the authors say, due to the weak dollar, a modest increase in imports, and the closing of the current account gap.

Suggested Citation

  • Dimitri B. Papadimitriou & Greg Hannsgen & Gennaro Zezza, 2008. "Fiscal Stimulus--Is More Needed?," Economics Strategic Analysis Archive sa_apr_08, Levy Economics Institute.
  • Handle: RePEc:lev:levysa:sa_apr_08

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. L. Randall Wray, 2008. "What's a Central Bank to Do? Policy Response to the Current Crisis," Economics Policy Note Archive 08-3, Levy Economics Institute.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lev:levysa:sa_apr_08. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Dunn). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.