Fiscal Stimulus with Spending Reversals

By Giancarlo Corsetti, André Meier, Gernot J. Müller. Review of Economics and Statistics, 2009

321 citations recorded by the source corpus.

Abstract 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 medium-term 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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/de591a541cedce0348e5052cb2945e5987249fab

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Citations in the corpus

The output effect of fiscal consolidation plans (2015, background): “The size of these effects will depend upon the transitory or permanent nature of the change in expenditure (Corsetti and Meier 2009).”
Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment (2014, unknown): “…contraction is bound to be crucially affected by the monetary stance, as well as by the anticipation of fiscal measures (spending cuts or tax hikes) dictated by the need to stabilize public debt in the medium and long term (see e.g. Christiano et al. 2011; Corsetti et al. 2012b; and Woodford 2011).”
Chronicle of a war foretold : the macroeconomic effects of anticipated defense spending shocks (2014, background): “…lax monetary policy (see Canova and Pappa (2011), Christiano et al. (2011) and Erceg and Linde (2013)); (c) rule-ofthumb consumers (see Gali et al. (2007)); (d) deep habits (see Mertens and Ravn (2012)); (e) spending reversals (see Muller et al. (2009)) and (g) home production (see Gnocchi (2013)).”
Clearing Up the Fiscal Multiplier Morass (2011, background): “Posterior estimates for the full sample yield somewhat unusual passive fiscal behavior in regime M: higher government debt modestly raises future lump-sum transfers, so the full brunt of debt stabilization is borne by government spending reversals of the kind that Corsetti et al. (2012) emphasize.”
What Determines Government Spending Multipliers? (2012, unknown): “in debt consolidation strategies than standard theoretical models assume—a point stressed in Corsetti et al. (2009a). The parameter estimates relating to lagged output and the composite leading indicator are somewhat harder to translate into a clear statement about the cyclical properties of governm”
Exchange Rate Regimes and Fiscal Multipliers (2013, methodology): “Drawing on the analysis in Corsetti et al. (2011a) we illustrate that differences in the monetary stance across exchange rate regimes are driving the difference in the multiplier, as in the Mundell-Fleming model.”