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Fiscal Policy in Good Times and Bad
Report

Fiscal Policy in Good Times and Bad

FRBSF, 2018

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Editorial Rating

9

Qualities

  • Analytical
  • Innovative
  • Overview

Recommendation

Typically, governments apply stimulus when an economy is in decline and then reverse course when conditions strengthen. But the 2017 US Tax Cuts and Jobs Act, implemented well into the eighth year of America’s expansion, seeks to boost and extend robust output. According to economists Tim Mahedy and Daniel J. Wilson in this brief but cogent analysis, evidence suggests such incentives are less effective during economic upswings than they are during downturns. getAbstract recommends this insightful research to economists and analysts.

Take-Aways

  • Traditionally, fiscal policies are countercyclical: They seek to reverse a downward turn in economic activity. 
  • The US government typically spends more during a downturn due to “automatic stabilizer programs” such as food stamps and unemployment insurance, as well as due to “discretionary” expenditures. 
  • The 2017 US Tax Cuts and Jobs Act is procyclical. It seeks to lift the GDP of an already expanding economy and continue the growth trajectory for a few more years.

About the Authors

Tim Mahedy is an economist at Bloomberg LP, and Daniel J. Wilson is an economist at the Federal Reserve Bank of San Francisco.


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