Olivier Coibion, Yuriy Gorodnichenko, Michael Weber, 08 September 2020

A major component of the 27 March CARES Act in the US was a one-time transfer to all qualifying adults of up to $1200, with $500 per additional child. Using a large-scale survey of US consumers, this column studies how these large transfers affected individuals' consumption, saving and labour supply decisions. Most respondents report that they primarily saved or paid down debts with their transfers, with only about 15% reporting that they mostly spent it. On average, individuals report having spent or planning to spend only around 40% of the total transfer. The payments appear to have had no meaningful effect on labour-supply decisions from these transfer payments, except for 20% of the unemployed who report that the stimulus payment made them search harder for a job.

James Cloyne, Nicholas Dimsdale, Natacha Postel-Vinay, 02 November 2018

The austerity, low interest rates, and sluggish growth in Britain between the two World Wars mirror today's economic circumstances. The column investigates the causal impact of tax changes on growth at the time. A 1% cut in taxes raised GDP by between 0.5% and 1% on impact, and by more than 2% over two years. This suggests that tax changes had an important macroeconomic impact and have the potential to generate similar effects today.

Barry Eichengreen, Kevin O'Rourke, 23 October 2012

The size of the fiscal policy multiplier – and thus the impact of austerity on GDP – has been a contentious issue since the crisis started. The IMF recently revived the debate by suggesting that the multiplier is much higher than previously thought in the current policy environment. This column discusses independent empirical research that confirms the IMF’s view – the authors’ estimate of the multiplier is in the range of 1.6.

Giancarlo Corsetti, Saverio Simonelli, Antonio Acconcia, 04 April 2011

Few things divide the economics profession more than this question: How much economic activity does $1 of government spending generate? This column provides a new angle. Looking at local councils in Italy between 1990 and 1999, it examines variation in budgets due to the removal of funds by central government if mafia involvement is suspected. It finds that the fiscal multiplier starts at 1.4 and rises to 2.0.

Alan Auerbach, Yuriy Gorodnichenko, 03 September 2010

The return from a fiscal stimulus – the fiscal multiplier – remains one of the most controversial topics in economics today. This column considers the influence of expectations, of variation in recessions and expansions, and of different components of government spending. It finds that the size of the multiplier varies considerably over the business cycle: between 0 and 0.5 in expansions and between 1 and 1.5 in recessions.

Enrique Mendoza, Carlos Vegh, Ethan Ilzetzki, 01 October 2009

How much stimulus does spending provide? This column says that fiscal multipliers are much weaker in countries that have high debt, lower income, flexible exchange rates, and greater international openness. Policymakers should consider these characteristics when evaluating the benefits of any fiscal stimulus package.

Volker Wieland, 31 March 2009

US economic advisers called for aggressive fiscal stimulus, and some support further measures. But many macroeconomists are not so sure. This column analyses fiscal stimulus using a New Keynesian model that exemplifies contemporary academic thinking on the subject. It says that the spending multiplier is much lower than the Obama administration’s estimates – government spending may quickly crowd out private consumption and investment.

Richard Clarida, 16 March 2009

Policymakers have committed substantial sums to addressing the global recession and the global financial crisis, but there is real doubt about their effectiveness. This column explains why the fiscal stimulus might fail.

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