If, When, How: A Primer on Fiscal Stimulus
Publication Date: January 2008
Publisher(s): Tax Policy Center
Special Collection: John D. and Catherine T. MacArthur Foundation
Keywords: Taxes, the Budget, and the Economy; Economic Stimulus; General Tax Policy; Fiscal future
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.