Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70210
Authors: 
Strulik, Holger
Trimborn, Timo
Year of Publication: 
2013
Series/Report no.: 
Discussion Papers, Center for European Governance and Economic Development Research 150
Abstract: 
Most of the discussion about fiscal stimulus focuses on the multiplier of government spending on impact. In this paper we shift the focus to the multiplier at the end, i.e. to the period in which a deficit spending program terminates. We show that recent time series analyses as well as economic models of different schools of thought predict that the multiplier turns negative before spending expires. This means that aggregate output at the time of expiry of fiscal stimulus is predicted to be lower than it could be without deficit spending. We set up a simple model that explains this phenomenon. Using phase diagram analysis we prove that the aggregate capital stock at the time of expiry of fiscal stimulus is lower than it would be without the deficit spending program. This fact explains why aggregate output is below its laissez faire level as well. We then calibrate an extended version of the model for the US and demonstrate how fiscal stimulus slows down recovery from a recession in the medium-run.
Subjects: 
fiscal stimulus
government spending
output multiplier
economic recovery
JEL: 
E60
H30
H50
O40
Document Type: 
Working Paper

Files in This Item:
File
Size
485.55 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.