Output Spillovers from Fiscal Policy

From Alan Auerbach and Yuriy Gorodnichenko

It’s tough out there for policymakers seeking to stabilize economies, and shocks from abroad aren’t helping. This column argues that for countries hit by recession, fiscal stimulus in another country might significantly stimulate demand back at home, softening the worse effects of the current crisis. The evidence suggests that transnational coordination of fiscal policy may well be more valuable than previously thought. [...] We document that fiscal stimulus in one country is likely to have economically and statistically significant effects on output in other countries, and that the strength of spillovers vary with the state of the economy in recipient and source countries, with output multipliers being very large in recessions. These results suggest that fiscal activism may be effective in stimulating demand in economic downturns and that coordination of fiscal policies may be more valuable than previously thought.

HT: Mark Thoma

About these ads

About ozidar

Graduate student at UC Berkeley, studying public finance & labor economics. https://sites.google.com/site/omzidar/
This entry was posted in Uncategorized and tagged , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s