Auerbach, Alan J

Abstract
 
This paper reviews the recent evolution of thinking and evidence regarding the effectiveness of activist fiscal policy, including how policy multipliers might vary with respect to economic conditions. Like many other countries that were hit by the “Great Recession,” the USA responded initially with active fiscal policy measures. But a more positive view of fiscal intervention appears to have developed earlier in the decade, and estimated decision rules confirm that there was an increase in policy activism. While this positive view has been tested by the unclear effects of fiscal policy during the Great Recession, recent evidence does suggest that fiscal policy may be especially effective in recession. Fiscal policy activism has also been tempered by recent concerns about growing government debt, a development which potentially might also undercut the effectiveness of expansionary fiscal policy.
 
Read the article online here.