This paper contributes to the debate about fiscal multipliers by studying the impacts of government investment in conventional neoclassical growth models. The analysis focuses on two dimensions of fiscal policy that are critical for understanding the effects of government investment:...

While theoretical models consistently predict that government spending shocks should lead to appreciation of the domestic currency, empirical studies have been stubbornly finding depreciation. Using daily data on U.S. defense spending (announced and actual payments), we document that the dollar...

Following through on pledges made during his election campaign, President Bush proposed and Congress passed a substantial tax cut in 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). Much has been written about the size of the tax cut, its impact on the federal budget, its...

This paper reviews the state of discretionary fiscal policy. Among its findings are: (1) In recent years, U.S. discretionary fiscal policy appears to have become more active in response to both cyclical conditions and a simple measure of budget balance. (2) Considerable uncertainty remains about...

We construct a computational dynamic stochastic overlapping generations general equilibrium model with uncertain lifetimes and explore the impact of policy stickiness (specifically, a major reform will preclude future reforms for a generation) on optimal long-run fiscal policy. Under such...

News--or foresight--about future economic fundamentals can create rational expectations equilibria with non-fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react. Using tax policies as a leading example...

The Great Recession and worldwide financial crisis have exploded fiscal imbalances and brought fiscal policy and inflation to the forefront of policy concerns. Those concerns will only grow as aging populations increase demands on government expenditures in coming decades. It is widely perceived...

In this paper, we estimate government purchase multipliers for a large number of OECD countries, allowing these multipliers to vary smoothly according to the state of the economy and using real-time forecast data to purge policy innovations of their predictable components. We adapt our previous...

Bayesian prior predictive analysis of five nested DSGE models suggests that model specifications and prior distributions tightly circumscribe the range of possible government spending multipliers. Multipliers are decomposed into wealth and substitution effects, yielding uniform comparisons...

In 1990, the government of Sweden introduced a major tax reform to take effect in 1991. The Swedish system prior to the legislation was so complex that the size and magnitude of the likely effects of the reform on incentives to invest were unknown. In this paper, we draw on Södersten (1989) and...