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March 2010 issue
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Corsetti, Levin, Smets, Walsh
Corsetti, Meier, Müller
Wieland
Gaiotti
Le Bihan
Galí
Fujiwara, Sudo, Teranishi
Pesenti
Levin, López-Salido, Nelson, Yun
King
Sims
Freedman, Kumhof, Laxton, Muir
Wouters
Walsh
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Commentary: Fiscal Stimulus and the Promise of Future Spending Cuts

by Volker Wieland
Goethe University of Frankfurt

Abstract

Recent evaluations of the fiscal stimulus packages enacted in 2009 in the United States and Europe such as Cogan et al. (2009) and Cwik and Wieland (2009) suggest that the GDP effects will be modest due to crowding out of private consumption and investment. Corsetti, Meier, and Müller (2009, 2010) argue that spending shocks are typically followed by consolidations with substantive spending cuts, which enhance the short-run stimulus effect. This note investigates the implications of this argument for the estimated impact of recent stimulus packages and the case for discretionary fiscal policy.

JEL Codes: C52, E62.

 
Full article (PDF, 12 pages 395 kb)