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Lessons for Automatic Fiscal Stabilizers from the Great Recession and the COVID Recession

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  • Karen Dynan
  • Douglas Elmendorf

Abstract

This paper simulates economic developments as if the discretionary fiscal stimulus enacted in the past two recessions had not occurred and additional automatic fiscal stabilizers had been deployed instead. For the calibration of key economic relationships most consistent with the empirical literature, we find that more sustained fiscal stimulus would have pushed unemployment down more rapidly following the Great Recession and that more limited stimulus would have caused inflation to increase much less following the COVID recession. We caution, though, that our estimates are uncertain given the large number of assumptions embedded in the calculations. Under different assumptions about the supply side of the economy when resource utilization is high, the stimulus enacted in early 2021 was not a significant cause of the observed runup in inflation that followed, and substituting an automatic stabilizer would have made little difference to inflation.

Suggested Citation

  • Karen Dynan & Douglas Elmendorf, 2025. "Lessons for Automatic Fiscal Stabilizers from the Great Recession and the COVID Recession," NBER Working Papers 34411, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34411
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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