Journal of Economic Perspectives: Vol. 24 No. 4 (Fall 2010)

Auerbach, Alan J., William G. Gale, and Benjamin H. Harris. 2010. "Activist Fiscal Policy." Journal of Economic Perspectives, 24(4): 141-64.

DOI: 10.1257/jep.24.4.141

During and after the "Great Recession" that began in December 2007, the U.S. federal government enacted several rounds of activist fiscal policy. In this paper, we review the recent evolution of thinking and evidence regarding the effectiveness of activist fiscal policy. Although fiscal interventions aimed at stimulating and stabilizing the economy have returned to common use, their efficacy remains controversial. We review the debate about the traditional types of fiscal policy interventions, such as broad-based tax cuts and spending increases, as well as more targeted policies. While there have been improvements in estimates of the effects of broad-based policies, much of what has been learned recently concerns how such multipliers might vary with respect to economic conditions, such as the credit market disruptions and very low interest rates that were central features of the Great Recession. The eclectic and innovative interventions by the Federal Reserve and other central banks during this period highlight the imprecise divisions between monetary and fiscal policy and the many channels through which fiscal policies can be implemented.

Auerbach, Alan J. (U CA, Berkeley)
Gale, William G. (Brookings Institution)
Harris, Benjamin H. (Brookings Institution)

E23: Macroeconomics: Production
E32: Business Fluctuations; Cycles
E44: Financial Markets and the Macroeconomy
E52: Monetary Policy
E62: Fiscal Policy