Friday, December 03, 2010

More of the "Stimulus" Argument

Maybe "porkulus" is even LESS useful than advertised.

Using powerful statistical methods to separate these effects in U.S. data, Andrew Mountford of the University of London and Harald Uhlig of the University of Chicago conclude that the small initial spending multiplier turns negative by the start of the second year. In a new cross-national time series study, Ethan Ilzetzki of the London School of Economics and Enrique Mendoza and Carlos Vegh of the University of Maryland conclude that in open economies with flexible exchange rates, “a fiscal expansion leads to no significant output gains.”

There's more; other studies determined that "stimulus" is, at best, a 1.2 multiplier (and over time that shrinks to a 0.2)--whereas tax cuts produce between 3.0 and 5.0 multiplier(s.) See the link.

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