Fiscal Policy in Good Times and Bad

Fiscal Policy in Good Times and Bad
Tim Mahedy and Daniel J. Wilson
FRBSF Economic Letter, July 9, 2018

 

 

Thanks in large part to recently enacted tax cuts, U.S. fiscal policy has taken a decidedly procyclical turn—providing stimulus when the economy is growing. In fact, the projected increase in the federal deficit over the next few years would represent the most procyclical fiscal policy stance since the Vietnam War. This matters because many recent studies have found that fiscal stimulus has a smaller impact when the economy is strong, implying that the near-term boost to GDP growth could be two-thirds or less of that from previous tax cuts.

 

 

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