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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