Fiscal Stimulus with Spending Reversals | Zendy

Giancarlo Corsetti | Zendy; André Meier | Zendy; Gernot J. Müller | Zendy

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Fiscal Stimulus with Spending Reversals

Author(s) -

Giancarlo Corsetti,

André Meier,

Gernot J. Müller

Publication year - 2011

Publication title -

the review of economics and statistics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 8.999

H-Index - 165

eISSN - 1530-9142

pISSN - 0034-6535

DOI - 10.1162/rest_a_00233

Subject(s) - economics , government spending , fiscal policy , stimulus (psychology) , debt , monetary economics , new keynesian economics , public spending , general equilibrium theory , short run , government debt , macroeconomics , monetary policy , welfare , politics , political science , law , market economy , psychotherapist , psychology

Posted Online November 9, 2012.The short-run effects of fiscal policy depend not only on current tax and spending choices, but also on expectations about future policy adjustment. While general equilibrium models typically restrict mediumterm adjustment to taxation, we highlight the importance of government spending dynamics. First, we provide time series evidence for the United States suggesting that an exogenous increase in government spending prompts a rise in public debt, followed over time by a reduction in spending below trend. Second, we show how expected spending reversals alter the short-run impact of fiscal policy in a new Keynesian model, bringing it closer in line with the evidence

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