Broda_Parker

Broda_Parker - Rebalancing the global economy Completing...

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Rebalancing the global economy Completing the Eurozone rescue Create account | Login vox Research-based policy analysis and commentary from leading economists Home People Topics Debates Jobs Events Tags Audio Subscribe Archive About Help Search Search this site: How do I. .. Create an account Receive the Weekly Digest email Join a Debate Submit an Event Post Comments Add a tag Search
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Send feedback Founding Contributors Alberto Alesina Richard Baldwin Erik Berglöf Giuseppe Bertola Olivier Blanchard Tito Boeri Willem Buiter Michael Burda Stephen Cecchetti Daniel Cohen Juan Dolado Esther Duflo Barry Eichengreen Jeffrey Frankel Francesco Giavazzi Rachel Griffith Philip Lane Philippe Martin Richard Portes Carmen M. Reinhart Anne Sibert Guido Tabellini Shang-Jin Wei Charles Wyplosz My account Create account Reset password Login Navigation Debates My Unread Create content
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The impact of the 2008 rebate Christian Broda Jonathan A. Parker 15 August 2008 Print Email Comment Republish This spring, the US government handed out $100 billion in tax rebates. Twentieth century economic thinking – permanent income hypothesis, Ricardian equivalence, and the like – suggests that most would have been saved, as Martin Feldstein recently argued. Not so. Recent research on microdata shows that the typical family increased spending by 3.5% when the rebate arrived, boosting overall nondurable consumption by 2.4% in 2008Q2. The number should be 4.1% in 2008Q3. Early in 2008, in response to slowing economic growth, the US federal government enacted an economic stimulus package consisting mainly of a $100 billion tax rebate program. By 1 July 2008, more than 70 million American households had received tax rebates of $950 on average. The hope of policymakers was that by putting money directly back into the hands of US households, they would increase spending levels and avoid (or at least mitigate) the severity of the slowdown. Skeptics argued that households would not spend their tax rebates. People tend to dislike swings in their consumption levels, leading some to believe that the one-time stimulus payment would be spent only gradually over many years . This would imply that the spending effect of the rebate would be modest at best, rendering fiscal policy ineffective, as Martin Feldstein recently argued . Others argued that since the money to pay for fiscal programs has to be borrowed and paid back in taxes, it’s a wash for the economy as a whole, and thus using fiscal policy to get the economy going is like taking a bucket of water from the deep end of a pool and dumping it into the shallow end. Studies of the 2001 US tax rebates showed a significant consumption effect
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This note was uploaded on 03/10/2012 for the course ECON 122 taught by Professor Nordhaus during the Fall '10 term at Yale.

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Broda_Parker - Rebalancing the global economy Completing...

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