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Spending rises are more effective in expanding the economy by as much as 20 percent compared to tax cuts

Gerba, Eddie and Hauzenberger, Klemens (2014) Spending rises are more effective in expanding the economy by as much as 20 percent compared to tax cuts. LSE American Politics and Policy (07 May 2014). Blog Entry.

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Abstract

Both fiscal and monetary authorities have engaged in ‘unconventional’ policies over the past few years in order to bring the Great Recession under control. But, have these actions been intentionally coordinated, and what has been their economic impact? More fundamentally, has there ever been a systematic or regular coordination between fiscal and monetary policy in the US? Eddie Gerba and Klemens Hauzenberger find sufficient evidence for an implicit coordination of policies, and demonstrate how it has changed over the past three decades. They find that spending and tax stimuli have notably been more efficient in expanding the economy during the Volcker chairmanship (1979-84) and the Great Recession (2008-12). Taking into account that the current interest rate is constrained by the zero lower bound, fiscal authorities have an unprecedented window of opportunity to pursue activist policies aimed at expanding output, if and only if they carefully manage the expectations of private agents.

Item Type: Website (Blog Entry)
Official URL: http://blogs.lse.ac.uk/usappblog/
Additional Information: © 2014 The Authors
Subjects: H Social Sciences > HB Economic Theory
Sets: Departments > European Institute
Collections > LSE American Politics and Policy (USAPP) Blog
Date Deposited: 12 Aug 2014 11:58
Last Modified: 12 Aug 2014 13:20
URI: http://eprints.lse.ac.uk/id/eprint/58899

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