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Fiscal Stimulus and Distortionary Taxation

Thorsten Drautzburg and Harald Uhlig ()

Review of Economic Dynamics, 2015, vol. 18, issue 4, 894-920

Abstract: We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark medium-scale 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 0.53 and modestly negative long-run multipliers around −0.36. We compare and relate recent literature multiplier calculations to ours. We explain the central empirical findings with the help of a simple three equation New Keynesian model with sticky wages and credit-constrained households. (Copyright: Elsevier)

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: 2015
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DOI: 10.1016/j.red.2015.09.003

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