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Do government stimulus programs have different effects in recessions, or by type of tax or spending program?

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  • John J. Heim

    (Rensselaer Polytechnic Institute
    SUNY)

Abstract

This study tests 70 structural models of US GDP, consumption, and investment, differing in control variables, econometric method, or period tested. Deficit-financed government stimulus programs were found to crowd-out consumer and business spending in both recessions and nonrecessions, even in Keynesian models. Causes of crowd-out in recessions are identified. The type of tax cut or spending stimulus did not matter. Some VAR studies reach contrary conclusions. Methodological differences may explain why. Differences include how causal and spurious correlates are separated, how business cycle and stimulus effects are distinguished, and under what circumstances parameter estimates can be modified.

Suggested Citation

  • John J. Heim, 2016. "Do government stimulus programs have different effects in recessions, or by type of tax or spending program?," Empirical Economics, Springer, vol. 51(4), pages 1333-1368, December.
    • Handle: RePEc:spr:empeco:v:51:y:2016:i:4:d:10.1007_s00181-015-1050-8
    DOI: 10.1007/s00181-015-1050-8
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    More about this item

    Keywords

    Structural macroeconomic modeling; Endogeneity; Identification; Multicollinearity; Government deficits;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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