Is Government Spending at the Zero Lower Bound Desirable?

Roberto Perotti, Tommaso Monacelli and Florin Bilbiie

No 10210, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. When government spending provides direct utility to the household, its optimal level is at most 0.5-1 percent of GDP for recessions of -4 percent; the numbers are higher for deeper recessions. When spending does not provide direct utility, it is generically welfare-detrimental: it should be kept unchanged at a long run-optimal value.

Keywords: Government spending multiplier; Welfare; Zero lower bound (search for similar items in EconPapers)
JEL-codes: D91 E21 E62 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (27)

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Related works:
Journal Article: Is Government Spending at the Zero Lower Bound Desirable? (2019)
Working Paper: Is Government Spending at the Zero Lower Bound Desirable? (2015)
Working Paper: Is Government Spending at the Zero Lower Bound Desirable? (2014)
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