Fiscal stimulus and distortionary taxation

Thorsten Drautzburg and Harald Uhlig (huhlig@uchicago.edu)

No 11-037, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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.

Keywords: Fiscal Stimulus; New Keynesian model; liquidity trap; zero lower bound; fiscal multiplier (search for similar items in EconPapers)
JEL-codes: E62 E63 E65 H20 H62 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-pub
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Citations: View citations in EconPapers (74)

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https://www.econstor.eu/bitstream/10419/45806/1/661862313.pdf (application/pdf)

Related works:
Journal Article: Fiscal Stimulus and Distortionary Taxation (2015)
Working Paper: Fiscal stimulus and distortionary taxation (2013)
Working Paper: Fiscal stimulus and distortionary taxation (2011)
Working Paper: Fiscal Stimulus and Distortionary Taxation (2011)
Working Paper: Fiscal Stimulus and Distortionary Taxation (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:11037

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