Economic Stimulus: Issues and Policies (February 27, 2009)

摘要

Recent policies have sought to contain damages spilling over from housing and financial markets to the broader economy, including monetary policy, which is the responsibility of the Federal Reserve, and fiscal policy, including a tax cut in February 2008 of $150 billion and two extensions of unemployment compensation in June and November of 2008. Over the past few months, the government has also intervened in specific financial markets, including financial assistance to troubled firms, including legislation granting authority to the Treasury Department to purchase $700 billion in assets. The broad intervention into the financial markets has been passed to avoid the spread of financial instability into the broader market but there are disadvantages, including leaving the government holding large amounts of mortgage debt. With the worsening performance of the economy beginning in September 2008, Congress passed and President Obama signed a much larger stimulus packages comprised of spending and tax cuts. The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5), a $787 billion package with $286 billion in tax cuts and the remainder in spending, was signed into law on February 17, 2009. It includes spending for infrastructure, unemployment benefits, and food stamps, revenue sharing with the States, middle class tax cuts, and business tax cuts. The need for additional fiscal stimulus depends on the state of the economy. The National Bureau of Economic Research (NBER), in December 2008, declared the economy in recession since December 2007. Growth rates, after two strong quarters, were negative in the fourth quarter of 2007, positive in the first and second quarters of 2008, and a negative 0.5% in the third quarter. Preliminary estimates put growth at a negative 6.2% for the fourth quarter of 2008, the worst since 1982. According to one data series, employment fell in every month of 2008. The unemployment rate, which rose slightly in the last half of 2007, declined in January and February of 2008, but began rising in March and in January 2009 stood at 7.6%. Some forecasters believe that the ongoing financial turmoil will result in a recession that is deeper and longer than average. Fiscal policy temporarily stimulates the economy through an increase in the budget deficit which leads to an increase in total spending in the economy, either through direct spending by the government or spending by the recipients of tax cuts or government transfers. There is a consensus that certain proposals, ones that result in more spending, can be implemented quickly, and leave no long-term effect on the budget deficit, would increase the benefits and reduce the costs of fiscal stimulus relative to other proposals. Economists generally agree that spending proposals are somewhat more stimulative than tax cuts since part of a tax cut may be saved by the recipients. The most important determinant of the effect on the economy is the stimulus size. The 2008 stimulus package increased the deficit by about 1% of GDP. The ARRA would increase the budget deficit by about 1.3% in 2009 and an additional 2.2% (or 3.5% overall) in 2010. CBO projects that the ARRA would raise GDP by a range of 1.4% to 3.8% in 2009 compared to what it otherwise would have been.