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If, When, How: A Primer on Fiscal Stimulus

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Publication Date: January 2008

Publisher(s): Tax Policy Center

Author(s): Douglas W. Elmendorf; Jason Furman

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Economics (Economic theory)

Keywords: Taxes, the Budget, and the Economy; Economic Stimulus; General Tax Policy; Fiscal future

Type: Report

Abstract:

Economists believe that monetary policy should play the lead role in stabilizing the economy because of the Federal Reserve's ability to act quickly and effectively to adjust interest rates, using its technical expertise and political insulation to balance competing priorities. Fiscal policy can also help stabilize the economy. This paper examines the conditions under which fiscal stimulus is appropriate and analyzes three principles of fiscal stimulus, that fiscal stimulus should be timely, targeted, and temporary. Elmendorf and Furman evaluate potential options for fiscal stimulus using these criteria and conclude with a discussion on the importance of improving risk protection for families.