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Means-Tested Subsidies and Economic Performance Since 2007

  • Casey B. Mulligan

The aggregate neoclassical growth model - with means-tested subsidies whose replacement rates began rising at the end of 2007 as its only impulse - produces time series for aggregate labor usage, consumption, investment, and real GDP that closely resemble actual U.S. time series. Despite having no explicit financial market, the model has investment fall steeply during the recession not because of any distortions with the supply of capital, but merely because labor is falling and labor is complementary with capital in the production function. Through the lens of the model, the fact that real consumption fell significantly below trend during 2008 suggests that labor usage per capita is expected to remain well below pre-recession levels for several years.

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File URL: http://www.nber.org/papers/w17445.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17445.

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Date of creation: Sep 2011
Date of revision:
Handle: RePEc:nbr:nberwo:17445
Note: EFG PE
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  1. Xavier Sala-i-Martin & Sanket Mohapatra, 2002. "Economic growth and investment in the Arab world," Discussion Papers 0203-10, Columbia University, Department of Economics.
  2. Robert J. Barro, 2003. "Determinants of Economic Growth in a Panel of Countries," CEMA Working Papers 505, China Economics and Management Academy, Central University of Finance and Economics.
  3. Plumper, Thomas & Martin, Christian W, 2003. " Democracy, Government Spending, and Economic Growth: A Political-Economic Explanation of the Barro-Effect," Public Choice, Springer, vol. 117(1-2), pages 27-50, October.
  4. Michael W. L. Elsby & Bart Hobijn & Aysegul Sahin, 2010. "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 1-69.
  5. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
  6. Casey Mulligan, 2009. "What Caused the Recession of 2008? Hints from Labor Productivity," NBER Working Papers 14729, National Bureau of Economic Research, Inc.
  7. Elsa V. Artadi & Xavier Sala-i-Martín, 2003. "The economic tragedy of the XXth Century: Growth in Africa," Economics Working Papers 684, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Casey B. Mulligan, 2002. "A Century of Labor-Leisure Distortions," NBER Working Papers 8774, National Bureau of Economic Research, Inc.
  9. Casey B. Mulligan, 2004. "What do Aggregate Consumption Euler Equations Say about the Capital Income Tax Burden?," NBER Working Papers 10262, National Bureau of Economic Research, Inc.
  10. Jermann, Urban & Quadrini, Vincenzo, 2009. "Macroeconomic Effects of Financial Shocks," CEPR Discussion Papers 7451, C.E.P.R. Discussion Papers.
  11. Song Han & Wenli Li, 2007. "Fresh Start or Head Start? The Effects of Filing for Personal Bankruptcy on Work Effort," Journal of Financial Services Research, Springer, vol. 31(2), pages 123-152, June.
  12. Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.
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