Download Crowding Out Fiscal Stimulus: Testing the Effectiveness of by John J. Heim PDF

By John J. Heim

This e-book offers overwhelming proof that US govt stimulus courses over the last fifty years haven't labored. utilizing the easiest and latest econometric trying out versions, it applies 228 separate difficult technological know-how assessments to envision the consequences of other stimulus types that are meant to, in conception, have proven confident effects. by way of checking out each attainable substitute interpretation, beginning with one period of time after which retesting in 3 extra time classes, this definitive research reveals that even if favoring pro-stimulus Keynesian versions, public financing via govt tax cuts and spending raise courses is likely to force down - or "crowd out" - as a lot inner most quarter spending because it stimulates within the public sector.

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Additional info for Crowding Out Fiscal Stimulus: Testing the Effectiveness of US Government Stimulus Programs

Sample text

Many earlier studies of the determinants of consumption and investment, some done decades ago, used only OLS, or if 2SLS was used, instruments were not necessarily tested for their strength. This raised the issue of how to compare the current study’s results with the earlier studies, some done decades ago, before modern econometric methods were available, particularly if a difference in results was found. Though our findings are based on what strong instrument variants of 2SLS showed, we also present weak instrument and OLS findings testing the same structural model, for comparison.

We then re-estimated them in weak instrument 2SLS (if the initial instrument tested was weak), then again in strong instrument 2SLS. This gave us 24 tests of the significance of the crowd out variable in Keynesian models. Results of each were noted. Once this was done, these twenty-four tests were rerun adding a consumer borrowing variable (CB2) or a business borrowing variable (IB(À1)), giving us a total of 48 test results. After every test, the effects on the deficit variable were noted. Many of these 48 tests were repeated replacing the one-variable deficit with two separate deficit variables: the government revenue variable and the government spending variable, to determine if crowd out effects were different for tax cut deficits and spending deficits.

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