Karel Mertens, Morten Ravn, 19 June 2012

“There are known unknowns; that is to say there are things that we now know we don’t know”. So said former US defence secretary Donald Rumsfeld. He was talking about the Iraq war but in the debate over fiscal policy, one ‘known unknown’ is the tax multiplier. This column tries to make it a known known.

Pontus Rendahl, 26 April 2012

Many developed economies are in a liquidity trap with interest rates at or near zero. Many also have high unemployment that looks set to persist. This column argues that it is times like these when governments should be spending more, not less – they just have to be careful how they do it.

Roger Farmer, Dmitry Plotnikov, 05 September 2011

Can government spending help the economy recover from a recession by boosting job creation and lowering unemployment? Or is it a waste of money? This column addresses this question and others using a unique framework. It explains why fiscal policy was effective at ending the Great Depression but it argues that a big fiscal expansion may not be the best solution this time round.

Paolo Surico, Kanishka Misra, 06 May 2011

What are the macroeconomic effects of a tax rebate? This column takes a novel approach by estimating the effects on a range of different individuals rather than just the typical person. Looking at the 2001 income tax rebates in the US, it finds evidence of a heterogeneous response to tax cuts and an economic effect $9 billion below what linear models suggest.

Hyunseung Oh, Ricardo Reis, 04 May 2011

Government spending and its effect on the economy is a perpetual source of debate. This column argues that too much discussion has focused on government purchases, when the fiscal expansion from 2007 to 2009 was all about transfers. It suggests that fiscal spending on transfers can boost the economy in a recession, though only if the transfer moves resources between the right groups.

Paul De Grauwe, 30 March 2010

Should governments continue with fiscal expansion or should it be cut back as soon as possible? This column compares different economic models and argues that the answer depends on the type of recession we are facing. In “normal recessions” the New Keynesian model is best, but in “abnormal recessions” it is the Keynesian model.

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