A Second Thought on Estimating Expansionary Fiscal Policy Effects in the U.S.

JIA, BIJIE (2017): A Second Thought on Estimating Expansionary Fiscal Policy Effects in the U.S.

Abstract

This paper revisits mixed findings of the expansionary fiscal spending effect in the U.S. An array of standard Vector-Autoregressive (VAR) models have been implemented to capture inconsistent effects of the fiscal expansion across studies. Findings in this paper consistently reveal that, first, government expenditures often generate less positive influence than government purchases; second, leaving aside the state and local government spending, federal government purchases alone have a very limited influence on the economy; third, 2007 recession significantly weakened the effectiveness of fiscal expansionary policy thereafter. Following these findings, this paper questions the validity of using government purchases alone to conclude the comprehensive effect of fiscal expansion.

• Item Type: MPRA Paper
• Language: English
• Keywords: E21; E32; E62; H30; H50.
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General; H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General

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