Fiscal Stimulus and the Promise of Future Spending Cuts

17 Pages Posted: 11 Jan 2010

Date Written: December 2009

Abstract

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.

Keywords: discretionary fiscal policy, fiscal multiplier, fiscal stimulus, government spending, macroeconomic modeling, New Keynesian Model

JEL Classification: C52, E62

Suggested Citation

Wieland, Volker, Fiscal Stimulus and the Promise of Future Spending Cuts (December 2009). CEPR Discussion Paper No. DP7615, Available at SSRN: https://ssrn.com/abstract=1533219

Volker Wieland (Contact Author)

University of Frankfurt ( email )

House of Finance
Grüneburgplatz 1
Frankfurt am Main, D-60323
Germany
+49 69 798 33805 (Phone)
+49 69 798 33907 (Fax)

HOME PAGE: http://www.volkerwieland.com

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