Faculty of Economics and Business Administration Publications Database

Fiscal Stimulus and the Promise of Future Spending Cuts

Volume: 6
Number: 1
Pages: 39 - 50
Month: March
ISSN-Print: 1815-4654
Link External Source: Online Version
Year: 2010
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.