nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒01‒16
23 papers chosen by
Keunjae Lee
Pusan National University

  1. On the Crowding-Out Effects of Tax-Financed Charitable Contributions by the Government By Alan Krause
  2. Change-over within little scope: On the decision neutrality of recent tax reform proposals By Siemers, Lars-H. R.; Zöller, Daniel
  3. Tax Competition and Migration: The Race-to-the-Bottom Hypothesis Revisited By Assaf Razin; Efraim Sadka
  4. The price elasticity of charitable giving: does the form of tax relief matter? By Kim Scharf; Sarah Smith
  5. Balanced Budget Government Spending in a Small Open Regional Economy By Patrizio Lecca; Peter McGregor; Kim Swales
  6. Capital taxation during the U.S. Great Depression By Ellen R. McGrattan
  7. The economics of infrastructure finance: Public-private partnerships versus public provision By Eduardo Engel; Ronald Fischer; Alexander Galetovic
  8. Does Fiscal Policy Matter? Blinder and Solow Revisited By Roger E.A. Farmer; Dmitry Plotnikov
  9. Investigating the Impact of Carbon Tax to Power Generation in Java-Bali System by Applying Optimization Technique By Maxensius Tri Sambodo
  10. Fiscal Policy Rules and the Sustainability of Public Debt in Europe By Stefan Collignon
  11. The Effects of Taxation on Migration: Some Evidence for the ASEAN and APEC Economies By Edda Claus; Iris Claus; Michael Dörsam
  12. Franchise Fee, Tax/Subsidy Policies and Economic Growth By Wang, Vey; Lai, Chung-Hui
  13. Spatial Decentralization and Program Evaluation: Theory and an Example from Indonesia By Nidhiya Menon; Mark M. Pitt
  14. Infrastructure Improvement and Its Impact on Indonesian Economic Performance By Djoni Hartono; Tony Irawan; Ferry Irawan
  15. Growth and the Optimal Carbon Tax: When to switch from exhaustible resources to renewables? By Frederick van der Ploeg; Cees Withagen
  16. Fiscal Policy in Good and Bad Times By Candelon Bertrand; Lieb Lenard
  17. Is there a metropolitan bias ? the inverse relationship between poverty and city size in selected developing countries By Ferre, Celine; Ferreira, Francisco H.G.; Lanjouw, Peter
  18. Ethnic Diversity and Preferences for Redistribution By Dahlberg, Matz; Edmark, Karin; Lundqvist, Heléne
  19. Cities and Carbon Market Finance: Taking Stock of Cities' Experience With Clean Development Mechanism (CDM) and Joint Implementation (JI) By Christa Clapp; Alexia Leseur; Olivier Sartor; Gregory Briner; Jan Corfee-Morlot
  20. Macroeconomic and policy implications of population aging in Brazil By Jorgensen, Ole Hagen
  21. Breakthrough innovations and welfare: The role of innovators' loss aversion and experience. By Daniela Grieco
  22. How large is the government spending multiplier ? evidence from World Bank lending By Kraay, Aart
  23. The Employment Effects of Fiscal Policy: How Costly are ARRA Jobs? By Byron Gangnes

  1. By: Alan Krause
    Abstract: An important question in the literature on charitable contributions is the extent to which tax-financed contributions by the government crowd out private contributions. This paper examines a simple model of charitable contributions in which there exist both warm-glow and public good motives for giving, but where the warm-glow motive is competitive in the sense that individuals evaluate their own contribution relative to that of their peers. It is shown that the competitive element of the warm-glow motive may exacerbate or attenuate the crowding-out effect, depending upon certain preference and income parameters. However, as the warm-glow motive for giving becomes purely competitive, crowding out is exacerbated and is almost dollar-for-dollar.
    Keywords: Charitable contributions, warm-glow, crowding out, public goods
    JEL: H23 H41
    Date: 2011–01
  2. By: Siemers, Lars-H. R.; Zöller, Daniel
    Abstract: Political economy aspects make progressive income taxation and taxation of capital income imperative in practise. International tax competition and profit shifting, in turn, put pressure on corporate and capital taxes. Hence, the scope for a politically feasible change-over to a status of improved taxation is little. We provide an extended dynamic general equilibrium model and analyze politically feasible recent reform proposals referring neutrality. We then propose an alternative tax reform that, in contrast to these proposals, guarantees even growth neutrality, without necessarily jeopardizing political feasibility.
    Keywords: Dynamic general equilibrium models; taxation; tax reform; decision neutrality; ACE; dual income tax
    JEL: H21 H25 H24 D58
    Date: 2011–01–06
  3. By: Assaf Razin; Efraim Sadka
    Abstract: The literature on tax competition with free capital mobility cites several reasons for the race-to-the-bottom hypothesis in the sense that tax competition may yield significantly lower tax rates than tax coordination. With a fixed (exogenously given) population that can move from one fiscal jurisdiction to another, the Tiebout paradigm suggests that tax competition among these jurisdictions yields an efficient outcome, so that there are no gains from tax coordination. The Tiebout paradigm considers the allocation of a given population among competing localities. Our model of international tax-transfer and migration competition among host countries deviates from the Tiebout paradigm in that the total population in the host countries and its skill distribution are endogenously determined through migration of various skills. As a result, competition needs not be efficient. This paper suggests that when a group of host countries faces an upward supply of immigrants, tax competition does not indeed lead to a race to the bottom; competition may lead to higher taxes than coordination.
    JEL: F2 H2
    Date: 2011–01
  4. By: Kim Scharf; Sarah Smith
    Abstract: This paper uses a survey-based approach to test alternative methods of channeling tax relief to donors – as a tax rebate for the donor or as a matched payment to the receiving charity. On accounting grounds these two are equivalent but, in line with earlier experimental studies, we find that gross donations are significantly more responsive to a match change than to a rebate change. We show that the difference can largely be explained by the fact that a majority of donors do not adjust their nominal donations in response to a change in subsidy. This evidence adds to the growing empirical literature suggesting that consumers may not react to tax changes. In the case of tax subsidies for donations, this has implications for policy design – we show for the UK that a match-based system is likely to be more effective at increasing the total amount of money going to charities.
    Keywords: charitable giving, tax subsidies, price elasticity
    JEL: C99 D12 D64 H24 H31 H41
    Date: 2010–10
  5. By: Patrizio Lecca (Department of Economics, Strathclyde University); Peter McGregor (Fraser of Allander Institute, Strathclyde University); Kim Swales (Department of Economics, Strathclyde University)
    Abstract: This paper investigates the impact of a balanced budget fiscal policy expansion in a regional context within a numerical dynamic general equilibrium model. We take Scotland as an example where, recently, there has been extensive debate on greater fiscal autonomy. In response to a balanced budget fiscal expansion the model suggests that: an increase in current government purchase in goods and services has negative multiplier effects only if the elasticity of substitution between private and public consumption is high enough to move downward the marginal utility of private consumers; public capital expenditure crowds in consumption and investment even with a high level of congestion; but crowding out effects might arise in the short-run if agents are myopic.
    Keywords: regional computable general equilibrium analysis, fiscal federalism, fiscal policy.
    JEL: H72 R13 R50
    Date: 2010–10
  6. By: Ellen R. McGrattan
    Abstract: Previous studies of the U.S. Great Depression find that increased taxation contributed little to either the dramatic downturn or the slow recovery. These studies include only one type of capital taxation: a business profits tax. The contribution is much greater when the analysis includes other types of capital taxes. A general equilibrium model extended to include taxes on dividends, property, capital stock, and excess and undistributed profits predicts patterns of output, investment, and hours worked more like those in the 1930s than found in earlier studies. The greatest effects come from the increased tax on corporate dividends.
    Date: 2010
  7. By: Eduardo Engel; Ronald Fischer; Alexander Galetovic
    Abstract: We examine the economics of infrastructure finance, focusing on public provision and public-private partnerships (PPPs). We show that project finance is appropriate for PPP projects, because there are few economies of scope and assets are project specific. Furthermore, we suggest that the higher cost of finance of PPPs is not an argument in favour of public provision, since it appears to reflect the combination of deficient contract design and the cost-cutting incentives embedded in PPPs. Thus in the case of a correctly designed PPP contract, the higher cost of capital may be the price to pay for the efficiency advantages of PPPs. We also examine the role of government activities in PPP financing (e.g. revenue guarantees, renegotiations) and their consequences. Finally, we discuss how to include PPPs, revenue guarantees and the results of PPP contract renegotiation in the government balance sheet.
    Date: 2010
  8. By: Roger E.A. Farmer; Dmitry Plotnikov
    Abstract: This paper uses the old-Keynesian representative agent model developed in Farmer (2010b) to answer two questions: 1) do increased government purchases crowd out private consumption? 2) do increased government purchases reduce unemployment? Farmer compared permanent tax financed expenditure paths and showed that the answer to 1) was yes and the answer to 2) was no. We generalize his result to temporary bond-financed paths of government purchases that are similar to the actual path that occurred during WWII. We find that a temporary increase in government purchases does crowd out private consumption expenditure as in Farmer (2010b). However, in contrast to Farmer's experiment we find that a temporary increase in government purchases can also reduce unemployment.
    JEL: E0 E12 E62
    Date: 2010–12
  9. By: Maxensius Tri Sambodo (Economic Research Center-Indonesian Institute of Sciences (P2E-LIPI))
    Abstract: Java-Bali power system dominates the national installed capacity and will contribute to about 76% of the national CO2 emissions from the electricity sector in the future. Thus, minimizing CO2 emission from the Java-Bali system can help Indonesia to reduce the national CO2 emissions level. We apply optimization approach to investigate this problem by including carbon tax into the cost function. We analyzed data based on electricity generating system in 2008. In general the optimization showed that diesel and gas turbine is not needed in the power plant system. Further, the simulation showed that if Indonesia adopted carbon tax by US$56/ton CO2 - USD 86/tCO2; it will lead to three major changing. First, carbon tax will increase the cost of power plant or equivalently increase tax revenue to about 2.1% of GDP in a year. Second, combine cycle has important role to offset decreasing output in steam power plant. Finally, by implementing carbon tax, daily CO2 can decrease by 77,586 ton per day. By applying sensitivity analysis, we also found a structural break in marginal cost when carbon tax is higher than US$ 50/tCO2. There are some weaknesses from this study such as not use strong assumption for availability factor and generating costs. This study proposed that government needs to optimize utilization of combine cycle power plan to offset steam power and implement carbon tax above US$ 50/ ton CO2, to reduce CO2 emissions significantly.
    Keywords: Power generation, Carbon tax, Optimization
    JEL: C6 Q4
    Date: 2010–12
  10. By: Stefan Collignon
    Abstract: In this paper, the sustainability of public debt is interpreted as the result of the interaction of fiscal policy with the economic environment, and not as a statistical concept as in most of the recent literature. If debt must not explode over time, policy makers have to respond to the changing conditions in the macroeconomic environment. This paper defines the conditions which will ensure compliance of fiscal policy with the intertemporal budget constraint in the context of Europe’s fiscal policy rules. The empirical part of the paper reveals that European public debt is sustainable in this respect, but questions regarding liquidity remain.
    Keywords: economic growth; economic integration; economic performance; Euro; fiscal policy; stability pact
    Date: 2010–12–15
  11. By: Edda Claus (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, and IIIS); Iris Claus (Inland Revenue and Centre for Applied Macroeconomic Analysis); Michael Dörsam (Universität Mainz)
    Abstract: This paper investigates the effects of taxation on migration. It develops a stylized, two country model to examine the impact of taxation on labor mobility. The theoretical prediction that taxation affects migration decisions is supported by some empirical evidence for the ASEAN and APEC economies. Average tax rates are found to have a larger impact on migration choices than marginal rates. Moreover, the results suggest that educated migrants are more responsive to taxation than migrants with no education. Average tax rates are most important for migrants with secondary education, while marginal rates have a greater influence on the decisions of migrants with tertiary education than secondary educated migrants. The finding that taxation affects migration decisions, in particular of educated migrants, has important policy implications.
    Keywords: International migration, taxation
    JEL: F22 H24 H31
    Date: 2010–12
  12. By: Wang, Vey; Lai, Chung-Hui
    Abstract: In this paper, we take a new look at the effects of the subsidy policy and the government’s R&D activities in an R&D-based growth model. The government not only subsidizes the R&D cost of the firms but also engages in R&D activities and, in addition, levies a specific tax on the firms producing the final and the intermediate goods, respectively, in order to finance the expenditure. We find that in the economy there exist two balanced equilibrium growth paths. In an economy with a high growth path, the government’s subsidy policy and its R&D activities will crowd out the private R&D activities, and hence the fiscal policies are of no help to the economic growth. In other words, the intermediate goods firms play an important role in driving the economic growth. By contrast, in an economy with a low growth path, the government that directly engages in R&D activities plays an important role in economic growth. The fiscal policies of the government have a positive effect on the economic growth.
    Keywords: Government’s R&D activities; Specific tax; Subsidy policy; Endogenous growth; R&D
    JEL: O30 O40 L00
    Date: 2010–06–27
  13. By: Nidhiya Menon (Department of Economics, Brandeis University); Mark M. Pitt (Brown University)
    Abstract: This paper proposes a novel instrumental variable method for program evaluation that only requires a single cross-section of data on the spatial intensity of programs and outcomes. The instruments are derived from a simple theoretical model of government decision-making in which governments are responsive to the attributes of places and their populations, rather than to the attributes of individuals, in making allocation decisions across space, and have a social welfare function that is spatially weakly separable, that is, that the budgeting process is multi-stage with respect to administrative districts and sub-districts. The spatial instrumental variables model is then estimated and tested by GMM with a single cross-section of Indonesian census data. The results offer support to the identification strategy proposed.
    Keywords: Spatial Decentralization, Program Evaluation, Instrumental Variables, Indonesia
    JEL: C21 H44 O12 C50
    Date: 2010–09
  14. By: Djoni Hartono (Graduate Program in Economics, Faculty of Economics and Business, University of Indonesia); Tony Irawan (Department of Economics,Faculty of Economics and Management, Bogor Agricultural University IPB); Ferry Irawan (Fiscal Policy Office - Ministry of Finance)
    Abstract: Indonesian government shows big commitment on the improvement of infrastructure which is reflected in some regulations and policies. It is supported by many empirical evidences that show the importance of infrastructure improvement on economic performance. In this paper, we develop a CGE model to analyze the impact of infrastructure on Indonesian economy by introducing several types of infrastructure and also discuss the impact of infrastructure on the poverty level. The results suggest that improvement on any types of infrastructure is expected will increase economic growth, raise government revenue, raise factor’s income and reduce the poverty level. Improvement on public work of agriculture, land transportation and telecommunication are still preferable option relative to others. Interestingly, even though public work of agriculture usually is located in rural areas, but the model suggest that public work of agriculture improvement will result higher impact on urban household relative to rural household.
    Keywords: CGE
    Date: 2010–12
  15. By: Frederick van der Ploeg; Cees Withagen
    Abstract: Optimal climate policy is studied in a Ramsey growth model. A developing economy weighs global warming less, hence is more likely to exhaust fossil fuel and exacerbate global warming. The optimal carbon tax is higher for a developed economy. We analyze the optimal time of transition from fossil fuel to renewables, amount of fossil fuel to leave in situ, and carbon tax. Subsidizing a backstop without an optimal carbon tax induces more fossil fuel to be left in situ and a quicker phasing in of renewables, but fossil fuel is depleted more quickly. Global warming need thus not be alleviated.
    Keywords: carbon tax, renewables, exhaustible resources, global warming, growth, intergenerational inequality aversion, second best, Green Paradox
    JEL: D90 E13 Q30 Q42 Q54
    Date: 2010
  16. By: Candelon Bertrand; Lieb Lenard (METEOR)
    Abstract: Using a Threshold Vector Autoregression framework identified via sign restrictions, we answer three questions: First, are fiscal policy shocks regime-dependent? Second, which variables are governing the regime? Third, what are the effects of fiscal policies on the main macroeconomic variables in each of these states? The linearity hypothesis is strongly rejected, with the two detected regimes clearly identifiable as recession and boom phases. We find that fiscal policy shocks have a stronger impact in times of economic stress than in times of expansion, and that direct spending policies are more efficient than tax-cut policies in stabilizing the economy in the short-run.
    Keywords: monetary economics ;
    Date: 2011
  17. By: Ferre, Celine; Ferreira, Francisco H.G.; Lanjouw, Peter
    Abstract: This paper provides evidence from eight developing countries of an inverse relationship between poverty and city size. Poverty is both more widespread and deeper in very small and small towns than in large or very large cities. This basic pattern is generally robust to choice of poverty line. The paper shows, further, that for all eight countries, a majority of the urban poor live in medium, small, or very small towns. Moreover, it is shown that the greater incidence and severity of consumption poverty in smaller towns is generally compounded by similarly greater deprivation in terms of access to basic infrastructure services, such as electricity, heating gas, sewerage, and solid waste disposal. The authors illustrate for one country -- Morocco -- that inequality within large cities is not driven by a severe dichotomy between slum dwellers and others. The notion of a single cleavage between slum residents and well-to-do burghers as the driver of urban inequality in the developing world thus appears to be unsubstantiated -- at least in this case. Robustness checks are performed to assess whether the findings in the paper are driven by price variation across city-size categories, by the reliance on an income-based concept of well-being, and by the application of small-area estimation techniques for estimating poverty rates at the town and city level.
    Keywords: Rural Poverty Reduction,Subnational Economic Development,City Development Strategies,Regional Economic Development
    Date: 2010–12–01
  18. By: Dahlberg, Matz (Department of Economics); Edmark, Karin (IFN); Lundqvist, Heléne (Department of Economics)
    Abstract: In recent decades, the immigration of workers and refugees to Europe has increased substantially, and the composition of the population in many countries has consequently become much more heterogeneous in terms of ethnic background. If people exhibit in-group bias in the sense of being more altruistic to one's own kind, such increased heterogeneity will lead to reduced support for redistribution among natives. This paper exploits a nationwide program placing refugees in municipalities throughout Sweden during the period 1985-94 to isolate exogenous variation in immigrant shares. We match data on refugee placement to panel survey data on inhabitants of the receiving municipalities to estimate the causal effects of increased immigrant shares on preferences for redistribution. The results show that a larger immigrant population leads to less support for redistribution in the form of preferred social benefit levels. This reduction in support is especially pronounced for respondents with high income and wealth. We also establish that OLS estimators that do not properly deal with endogeneity problems - as in earlier studies - are likely to yield positively biased (i.e., less negative) effects of ethnic heterogeneity on preferences for redistribution.
    Keywords: Income redistribution; ethnic heterogeneity; immigration
    JEL: D31 D64 Z13
    Date: 2011–01–03
  19. By: Christa Clapp; Alexia Leseur; Olivier Sartor; Gregory Briner; Jan Corfee-Morlot
    Abstract: The importance of cities in climate policy stems from the simple reality that they house the majority of the world’s population, two-thirds of world energy use and over 70% of global energy use emissions. At the international level, global carbon markets have become an important new source of financing for mitigation projects and programmes. Yet to date, the participation of urban authorities and of urban mitigation projects in the global carbon market remains extremely limited. The under-representation of urban carbon projects can be linked both to the difficulties to implement urban mitigation projects and to the difficulties for cities to access the carbon market. This paper reviews 10 in–depth case studies of urban projects proposed and operating within the realm of Joint Implementation (JI) and the Clean Development Mechanism (CDM) of the Kyoto Protocol. It explores the drivers of success for projects, examining in particular: types of projects that have been successful and their profitability; leadership and other roles of various actors in project initiation development and operation (i.e. local, regional and national governments as well as international, private sector or other non-governmental organisations); the role of local cobenefits; and project financial structure and risk management approaches. This paper also considers how these lessons learned may inform decisions in the future about how to best tap the potential for carbon markets to offer increased levels of financial support for urban mitigation projects or programmes.<BR>La place accordée aux villes dans la politique climatique découle d’un constat simple : elles abritent la majorité de la population mondiale, consomment les deux tiers de l’énergie mondiale et produisent plus de 70 % des émissions mondiales liées à cette consommation. Au niveau international, les marchés mondiaux du carbone sont devenus une nouvelle source importante de financement pour les projets et les programmes d’atténuation. Pourtant, à ce jour, la participation des autorités urbaines et des projets urbains d’atténuation au marché mondial du carbone reste encore extrêmement limitée. La sous-représentation des projets urbains dans le domaine du carbone est à mettre en rapport avec les difficultés inhérentes à la mise en oeuvre de projets urbains d’atténuation et avec les obstacles rencontrés par les villes pour accéder au marché du carbone. Ce rapport examine dix études de cas approfondies portant sur des projets urbains, envisagés ou existants, dans le domaine de la mise en oeuvre conjointe (MOC) ou du mécanisme pour un développement propre (MDP) du Protocole de Kyoto. Il explore les facteurs de succès des projets, en examinant plus particulièrement les types de projets qui ont réussi et leur rentabilité ; le rôle moteur des autorités et celui des différents acteurs dans le lancement des projets, leur développement et leur fonctionnement (autorités locales, régionales et nationales, et organisations internationales, non gouvernementales et du secteur privé) ; les avantages connexes locaux ; et les approches en matière de structure financière des projets et de gestion des risques. Cette étude envisage aussi comment les enseignements tirés de ces expériences pourront à l’avenir éclairer les décisions futures sur les moyens de mobiliser au mieux le potentiel des marchés du carbone au service de l’accroissement du soutien financier aux projets ou programmes urbains d’atténuation.
    Keywords: climate change, Kyoto protocol, cities, Greenhouse gas mitigation, Carbon finance, changement climatique, Protocole de Kyoto, atténuation des émissions de gaz à effet de serre, finance carbone, villes
    JEL: F30 F53 G15 H87
    Date: 2010–11–19
  20. By: Jorgensen, Ole Hagen
    Abstract: This paper analyzes the macroeconomic implications of population aging in Brazil. Three alternative yet complementary methodologies are adopted, and depending on policy responses to the fiscal implications of aging, there are two main findings: First, saving rates could increase and not necessarily fall as a consequence of aging in Brazil -- thus contradicting conventional views. Second, lifetime wealth across generations could increase -- as capital deepening generates a second demographic dividend. Two policy responses to aging are emphasized: First, a structural policy response of linking mandatory retirement (or entitlement) ages to increasing life expectancy would boost labor supply and reduce the fiscal costs of aging. Second, in terms of preferable parametric policy responses, the second demographic dividend will be promoted to the highest extent by keeping taxes and debt unchanged while allowing public pensions to adjust downward. Such a policy response would keep pensions from further crowding out private saving -- thus balancing capital accumulation with intergenerational income distribution. In conclusion, Brazil will not necessarily experience a fall in saving and growth, but if government policies are appropriately, adequately, and timely formulated, population aging is likely to lead to substantial capital deepening and increases in lifetime income, wealth, and welfare.
    Keywords: Emerging Markets,Access to Finance,Population Policies,Economic Theory&Research,Debt Markets
    Date: 2011–01–01
  21. By: Daniela Grieco (Department of Economics (University of Verona))
    Abstract: Technological refinements appears to be much more frequent than breakthrough innovations. We argue that this could be the result of an optimizing choice when the innovation revenues are exposed to Knightian uncertainty and innovators are loss-averse. The innovator's choice between breakthrough and incremental innovations is analyzed in the context of a neo-Schumpeterian growth model that accounts for the introduction of new goods and related sunk costs. The results show that the welfare generated by breakthrough innovations drops dramatically when agents are uncertainty-averse and/or loss-averse, but rises as innovators' experience increases.
    Keywords: Incremental innovation, Breakthrough innovation, Uncertainty, Loss aversion, Experience
    JEL: D60 D81 O32
    Date: 2010–12
  22. By: Kraay, Aart
    Abstract: This paper proposes a novel method of isolating fluctuations in public spending that are likely to be uncorrelated with contemporaneous macroeconomic shocks and can be used to estimate government spending multipliers. The approach relies on two features unique to many low-income countries: (1) borrowing from the World Bank finances a substantial fraction of public spending, and (2) actual spending on World Bank-financed projects is typically spread out over several years following the original approval of the project. These two features imply that fluctuations in spending on World Bank projects in a given year are in large part determined by fluctuations in project approval decisions made in previous years, and so are unlikely to be correlated with shocks to output in the current year. World Bank project-level disbursement data are used to isolate the component of public spending associated with project approvals from previous years, which in turn can be used to estimate government spending multipliers, in a sample of 29 aid-dependent low-income countries. The estimated multipliers are small, reasonably precisely estimated, and rarely significantly different from zero.
    Keywords: Debt Markets,Public Sector Economics,Banks&Banking Reform,Urban Economics,Economic Stabilization
    Date: 2010–12–01
  23. By: Byron Gangnes (UHERO: Economic Research Organization at the University of Hawaii Research Organization)
    Abstract: The American Recovery and Reinvestment Act was intended to stimulate the U.S. economy and to create jobs. But at what cost? In this paper, we discuss the range of potential benefits and costs associated with counter-cyclical fiscal policy. Benefits and costs may be social, macroeconomic, systemic, and budgetary. They may depend importantly on timing and implementation. There may be very different implications over the business cycle horizon and in the medium to long term. We use simulations of the IHS Global Insight macro-econometric model to evaluate some of these costs and benefits in the U.S. economy, looking specifically at the impact of the ARRA program and potential alternative policies.
    Keywords: fiscal policy; employment; American Recovery and Reinvestment Act (ARRA); econometric model simulation.
    JEL: E37 E62 E65
    Date: 2010–12

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