This paper studies the effects of fiscal policies -- depicted as stochastic changes in government spending and distortionary tax rates -- when the government cannot use lump sum taxes to achieve intertemporal budget balance. This framework contrasts the more standard analysis in which spending...

Can a large-scale defcit spending program speed up recovery after recession? To answer that question we calibrate a standard neoclassical growth model with US data and assume that an exogenous shock has driven aggregate output far below steady-state level. We calibrate the model such that a...