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Title:Short-run fiscal policy: Welfare, redistribution, and aggregate effects in the short and long run PDF Logo
Authors:Kitao, Sagiri
Issue Date:2010
Series/Report no.:Staff Report, Federal Reserve Bank of New York 442
Abstract:This paper quantifies the effects of two short-run fiscal policies, a temporary tax cut and a temporary rebate transfer, that are intended to stimulate economic activity. A reduction in income taxation provides immediate incentives to work and save more, raising aggregate output and consumption. A temporary rebate is mostly saved and increases consumption marginally. Both policies improve the overall welfare of households, and the rebate policy especially benefits low-income households. In the long run, however, the debt accumulated to finance the stimulus and a higher tax to service the debt can crowd out capital and reduce output and consumption, causing welfare to deteriorate.
Subjects:Short-run fiscal policy
life-cycle model
general equilibrium
JEL:E2
E62
H24
H6
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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