Why Hasn’t the US Economic Stimulus Been More Effective? The Debate on Tax and Expenditure Multipliers

Recent dissatisfaction with the impact of expenditure stimulus on economic activity in the United States, along with the results of academic research, have once again raised questions about the effectiveness of fiscal stimulus policies and about whether stimulus to a recessionary economy should be in the form of tax cuts or expenditure increases. This paper considers alternative methods for evaluating the impacts of stimulus policy strategies. We discuss conceptual challenges involved in effectiveness measurement, and we review alternative empirical approaches applied in recent studies. We then present our own estimates of policy multipliers based on simulations of the IHS Global Insight model of the US economy. Based on this review and analysis, we address the question of why recent US stimulus programs have not been more effective.

Published: Adams, F.G., Gangnes, B., 2010,  Why Hasn’t the US Economic Stimulus Been More Effective? The Debate on Tax and Expenditure Multipliers. World Economics, 11 (4), 111-130.

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