What Fiscal Policy Is Effective at Zero Interest Rates ?

@inproceedings{Eggertsson2009WhatFP,
  title={What Fiscal Policy Is Effective at Zero Interest Rates ?},
  author={Gauti B. Eggertsson},
  year={2009}
}
  • Gauti B. Eggertsson
  • Published 2009
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… CONTINUE READING
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