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Current events: Stimulus package (ARRA)
u ge mp ca ons o sca po cy
Full employment budget balance
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Non- artisan and Partisan Anal ses The CBO is the Congresss
nonpartisan
econom c u ge ana y ca arm Other agencies include Generalccoun a
y ce an
Congressional Research Service (CRS) rrors e xecu ve ranc s ce
oManagement and Budget (OMB) and
White House
read
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Well interpret work to mean increase, ,
One has to be careful about over whatper o one a s a ou wor
ng
Uncertainty pervades all these analyses
(real world vs. textbook)
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Estimates of the Impact of ARRA
Source: CEA, Fifth Quarterly Report on the Economic Impact of
ARRA (Nov. 18,
2010)http://www.whitehouse.gov/sites/default/files/cea_5th_arra_report.pdf
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How Did They Estimate This Effect? Use the multiplier model we
have learned
gure ou ow muc ax paymen s ave eenreduced, how much transfers
have increased
gure ou ow muc governmen spen ng ongoods and services
, ,to GDP
Caveat: Have to account for time dimension
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Quantities Cumulative
Source: CEA, Fifth Quarterly Report on the Economic Impact of
ARRA (Nov. 18,
2010)http://www.whitehouse.gov/sites/default/files/cea_5th_arra_report.pdf
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Apply Multipliers (for 09Q2)IMPACT MULTIPLIERS (within the
quarter)
Tax cuts: $28.4 bn 0 AMT relief: $7.0 bn 0
Bus. Tax incentives: $10.9 bn 0
. .
Aid to directly impacted: $9.8 bn 1
Govt. investment outlays: $7.4 bn 1= 28.4 0 + 7.20 + 10.90 +
28.20.5 + 9.81 + 7.41
= $31.3 bn
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,
.
$31.3 bn/1.10 = 28.57 Ch.2005$
rea : . - . = .
09Q2 real GDP: 12781.88/4 = 3195.47 Impact 2009Q2: 28.57/3195.47
= 0.00894
Annualize im act: 1.00894 4 = 1.0362
Impact on growth: (1.0362-1)100%= 3.6 ppts/ , annualized
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Com arisons Com lications . . . .
Impact vs. dynamic multipliers
n our ma , we assume every ng
happens with a period In reality, impact is different from
cumulative long run
In 2009Q3, some of the tax cuts in2009Q2 will have an im act:
how much?
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=mset 1 0_
GTBuS
+= YT 10
+=
GOYBu
010
= Y 00
= Y
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+++ mGObcc
)( 000010 +++= mxGObtcc
)( == cYc
ere
10 += GOYttBuS
0110
+=
BuS
cu
11
0
110 =
=t
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Balanced Bud et Multi lier Suppose one needs to keep budget
balanced.
ssume
])([ mGObccY +++=
,,111cmt ===
])([ 000010 mxGObtccY +++=
GOt = 0])([ 01 GOtcY +=
][ 1 GOGOc +===>
GOcY = ]1[
1]1[/ 1 == cGOY for balanced budget multiplier
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Full Em lo ment Bud et BalanceBudget Balance
10 YttT
u
+=
010 )( GOYttBuS +=
GTBuS
10 YttT nn +=
010 nn
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Full Employment and Actual BuS
.04
.00
. Cyclically adjusted
BuS to Potential GDP
-.04
-.02
-.08
-.06Cyclically adjustedBuS/GDPFederal
bud et
-.10
70 75 80 85 90 95 00 05 10
BuS/GDPbalance
Source: CBO, The Effects of Automatic Stabilizers on the Federal
Budget, April 2011.
