# What Fiscal Policy Is Effective at Zero Interest Rates?

@article{Eggertsson2011WhatFP, title={What Fiscal Policy Is Effective at Zero Interest Rates?}, author={Gauti B. Eggertsson}, journal={NBER Macroeconomics Annual}, year={2011}, volume={25}, pages={59 - 112} }

Tax cuts can deepen a recession if the short-term nominal interest rate is zero, according to a standard New Keynesian business cycle model. An example of a contractionary tax cut is a reduction in taxes on wages. This tax cut deepens a recession because it increases deflationary pressures. Another example is a cut in capital taxes. This tax cut deepens a recession because it encourages people to save instead of spend at a time when more spending is needed. Fiscal policies aimed directly at…

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