Means-Tested Subsidies and Economic Performance Since 2007

59 Pages Posted: 23 Sep 2011

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Date Written: September 2011

Abstract

The aggregate neoclassical growth model - with means-tested subsidies whose replacement rates began rising at the end of 2007 as its only impulse - produces time series for aggregate labor usage, consumption, investment, and real GDP that closely resemble actual U.S. time series. Despite having no explicit financial market, the model has investment fall steeply during the recession not because of any distortions with the supply of capital, but merely because labor is falling and labor is complementary with capital in the production function. Through the lens of the model, the fact that real consumption fell significantly below trend during 2008 suggests that labor usage per capita is expected to remain well below pre-recession levels for several years.

Suggested Citation

Mulligan, Casey B., Means-Tested Subsidies and Economic Performance Since 2007 (September 2011). NBER Working Paper No. w17445. Available at SSRN: https://ssrn.com/abstract=1932576

Casey B. Mulligan (Contact Author)

University of Chicago ( email )

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National Bureau of Economic Research (NBER)

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