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Fiscal Stabilization in the United States: Lessons for Monetary Unions

Plamen Nikolov and Paolo Pasimeni

Economics Working Paper Archive from Levy Economics Institute

Abstract: The debate about the use of fiscal instruments for macroeconomic stabilization has regained prominence in the aftermath of the Great Recession, and the experience of a monetary union equipped with fiscal shock absorbers, such as the United States, has often been a reference. This paper enhances our knowledge about the degree of macroeconomic stabilization achieved in the United States through the federal budget, providing a detailed breakdown of the different channels. In particular, we investigate the relative importance and stabilization impact of the federal system of unemployment benefits and of its extension as a response to the Great Recession. The analysis shows that in the United States, corporate income taxes collected at the federal level are the single most efficient instrument for providing stabilization, given that even with a smaller size than other instruments they can provide important effects, mainly against common shocks. On the other hand, Social Security benefits and personal income taxes have a greater role in stabilizing asymmetric shocks. A federal system of unemployment insurance, then, can play an important stabilization role, in particular when enhanced by a discretionary program of extended benefits in the event of a large shock, like the Great Recession.

Keywords: China; Monetary Union; Macroeconomic Stabilization; Fiscal Policy; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E63 F36 F41 F45 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-ias, nep-mac, nep-ore and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Fiscal Stabilization in the United States: Lessons for Monetary Unions (2023) Downloads
Working Paper: Fiscal Stabilization in the United States: Lessons for Monetary Unions (2019) Downloads
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