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Commentary: Fiscal Stimulus and the Promise of Future Spending Cuts

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  • 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.

Suggested Citation

  • Volker Wieland, 2010. "Commentary: Fiscal Stimulus and the Promise of Future Spending Cuts," International Journal of Central Banking, International Journal of Central Banking, vol. 6(1), pages 39-50, March.
    • Handle: RePEc:ijc:ijcjou:y:2010:q:1:a:2
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    References listed on IDEAS

    as
    1. Tobias Cwik & Volker Wieland, 2011. "Keynesian government spending multipliers and spillovers in the euro area [Fiscal policy and growth: do financial crises make a difference?]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 26(67), pages 493-549.
    2. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "Fiscal Stimulus with Spending Reversals," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 878-895, November.
    3. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
    4. Robert J. Barro & Charles J. Redlick, 2011. "Macroeconomic Effects From Government Purchases and Taxes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 51-102.
    5. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    6. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2010. "Cross-Border Spillovers from Fiscal Stimulus," International Journal of Central Banking, International Journal of Central Banking, vol. 6(1), pages 5-37, March.
    7. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 1-50.
    8. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    Citations

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    Cited by:

    1. Gabrisch, Hubert & Orlowski, Lucjan T. & Pusch, Toralf, 2012. "Sovereign default Risk in the Euro-Periphery and the Euro-Candidate Countries," MPRA Paper 41265, University Library of Munich, Germany.
    2. Hussain Ali Bekhet & Tahira Yasmin, 2014. "Assessment of the global financial crisis effects on energy consumption and economic growth in Malaysia: An input–output analysis," International Economics, CEPII research center, issue 140, pages 49-70.
    3. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2010. "New Keynesian versus old Keynesian government spending multipliers," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 281-295, March.
    4. Ilori, Ayobami E. & Paez-Farrell, Juan & Thoenissen, Christoph, 2022. "Fiscal policy shocks and international spillovers," European Economic Review, Elsevier, vol. 141(C).

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    More about this item

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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