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Wednesday, September 30, 2009

The Journal Takes a Fresh Swipe at the Stimulus

In a paper being prepared for the National Bureau of Economic Research, two Harvard affiliated scholars, one a professor the other a recent grad, tested the theory that stimulus spending boosts economic growth "exponentially." In other words, for every dollar of government spending (or in this case increased debt) do we actually reap a dollar or more of benefit?

As can be expected, the WSJ adaptation isn't an excessively easy read however, the eventual conclusion punches a few more holes in the rescue scenario being pushed by the Obama Administration:
The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

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