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| Title: | | Short-run fiscal policy: Welfare, redistribution, and aggregate effects in the short and long run  |
| 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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