The Fall and Rise of Keynesian Fiscal Policy

19 Pages Posted: 9 Dec 2012

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: December 2012

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.

Keywords: American Recovery and Restoration Act, discretionary policy, multiplier, recession, stabilization policy

JEL Classification: E62, E65, H12, H62

Suggested Citation

Auerbach, Alan Jeffrey, The Fall and Rise of Keynesian Fiscal Policy (December 2012). Asian Economic Policy Review, Vol. 7, Issue 2, pp. 157-175, 2012. Available at SSRN: https://ssrn.com/abstract=2186752 or http://dx.doi.org/10.1111/j.1748-3131.2012.01228.x

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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