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Title:Fiscal stimulus and distortionary taxation PDF Logo
Authors:Drautzburg, Thorsten
Uhlig, Harald
Issue Date:2011
Series/Report no.:ZEW Discussion Papers 11-037
Abstract:We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark Smets-Wouters (Smets and Wouters, 2007) New Keynesian model, allowing for credit-constrained households, the zero lower bound, government capital and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.52 and modestly negative long-run multipliers around -0.42. The multiplier is sensitive to the fraction of transfers given to credit-constrained households, the duration of the zero lower bound and the capital. The stimulus results in negative welfare effects for unconstrained agents. The constrained agents gain, if they discount the future substantially.
Subjects:Fiscal Stimulus
New Keynesian model
liquidity trap
zero lower bound
fiscal multiplier
JEL:E62
E63
E65
H20
H62
Persistent Identifier of the first edition:urn:nbn:de:bsz:180-madoc-31881
Document Type:Working Paper
Appears in Collections:ZEW Discussion Papers
Publikationen von Forscherinnen und Forschern des ZEW

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