Is There a Role for Discretionary Fiscal Policy? / Alan Auerbach.

Format:

Book

Author/Creator:

Auerbach, Alan.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9306.

NBER working paper series no. w9306

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

This paper reviews the state of discretionary fiscal policy. Among its findings are: (1) In recent years, U.S. discretionary fiscal policy appears to have become more active in response to both cyclical conditions and a simple measure of budget balance. (2) Considerable uncertainty remains about how large an impact discretionary fiscal policy has on output. (3) There is little evidence that discretionary fiscal policy has played an important stabilization role during recent decades. (4) Budgetary pressure may weaken the efficacy of expansionary fiscal policy. Conversely, contractionary fiscal policy might have a salutary effect on output. This possibility may be relevant for understanding the impact of fiscal policy in the 1990s, although the mechanism is unclear. (5) The automatic stabilizers embedded in the fiscal system have experienced little net change since the 1960s and have contributed to cushioning cyclical fluctuations. But the tax system has many attributes that weaken its potential role as an automatic stabilizer, particularly with respect to investment. (6) The government's reported fiscal position, to which fiscal policy appears responsive, represents a very poor measure of underlying fiscal balance.

Notes:

Print version record

November 2002.