201043pap - Finance and Economics Discussion Series...

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Unformatted text preview: Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Fiscal Policy in the United States: Automatic Stabilizers, Discretionary Fiscal Policy Actions, and the Economy Glenn Follette and Byron Lutz 2010-43 NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers. Finance and Economics Discussion Series Division of Research and Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Fiscal Policy in the United States: Automatic Stabilizers, Discretionary Fiscal Policy Actions, and the Economy Glenn Follette and Byron Lutz NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. Reference to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers. Fiscal Policy in the United States: Automatic Stabilizers, Discretionary Fiscal Policy Actions, and the Economy Glenn Follette and Byron Lutz June 28, 2010 Abstract We examine the effects of the economy on the government budget as well as the effects of the budget on the economy. First, we provide measures of the effects of automatic stabilizers on budget outcomes at the federal and state and local levels. For the federal government, the deficit increases about 0.35 percent of GDP for each 1 percentage point deviation of actual GDP relative to potential GDP. For state and local governments, the deficit increases by about 0.1 percent of GDP. We then examine the response of the economy to the automatic stabilizers using the FRB/US model by comparing the response to aggregate demand shocks under two scenarios: with the automatic stabilizers in place and without the automatic stabilizers. Second, we provide measures of discretionary fiscal policy actions at the federal and state and local levels. We find that federal policy actions are somewhat counter-cyclical while state and local policy actions have been somewhat pro-cyclical. Finally, we evaluate the impact of the budget, from both automatic stabilizers and discretionary actions, on economic activity in 2008 and 2009....
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This note was uploaded on 03/20/2012 for the course ECON 300 taught by Professor Drondson during the Spring '12 term at Indiana University-Purdue University Fort Wayne.

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201043pap - Finance and Economics Discussion Series...

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