## _wp1073

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---

### Context and motivation
- Global economy faced "large negative demand shocks" from "sharp declines in house and stock prices and a tightening of financial conditions."
- Policy responses included measures to address liquidity and solvency in financial institutions, central banks reducing interest rates "to unprecedented levels," and use of "quantitative easing and qualitative or credit easing."
- Despite these measures, "credit remained tight and aggregate demand in many countries continued to weaken rapidly," raising concern about "deep and prolonged recession."
- With limited scope for further monetary stimulus, "attention turned to fiscal policy."

### Analytical approach and models
- Uses "seven structural models of national economies and of the global economy" from institutions including the U.S. Federal Reserve, the European Central Bank, the International Monetary Fund, the European Commission, the OECD and the Bank of Canada.
- Cross-model comparison checks "the robustness of the predictions produced by state-of-the-art macroeconomic models."
- Structural models emphasized as "well-equipped to assess the impact of monetary accommodation" versus many empirical estimated models suited to "normal business cycle conditions."

### Definition of experiments and fiscal multipliers
- Fiscal impulses normalized so discretionary shock = increase in expenditures or decline in revenues equal to 1 percent of baseline, pre-stimulus GDP, for either one year or two years.
- Government deficits respond endogenously because of automatic stabilizers; post-stimulus change in deficits is less than the discretionary fiscal stimulus.
- Multiplier measured as percentage deviation of real GDP from baseline GDP due to the fiscal shock.
- Monetary policy: coordinated global response assumed; national policy follows an interest rate rule. Interest rates either adjust per reaction function or are held fixed for one or two years (monetary accommodation).

### The seven fiscal instruments analyzed
- Increase in government investment expenditures
- Increase in government consumption expenditures
- Increase in general lump sum transfers
- Increase in lump sum transfers targeted to hand-to-mouth households
- Decrease in labor income tax rates
- Decrease in consumption tax rates
- Decrease in corporate income tax rates

### The seven structural models (coverage and key features)
- Models/institutions: QUEST (European Commission), GIMF (IMF), FRB-US and SIGMA (Board of Governors of the Federal Reserve System), BoC-GEM (Bank of Canada), NAWM (ECB), OECD Fiscal (OECD).
- Four global models: BoC-GEM, GIMF, QUEST, SIGMA.
- NAWM: two-region model (United States and the euro area).
- FRB-US: U.S.-only model.
- OECD Fiscal: euro-area-only model.
- Six models are DSGE; FRB-US based on polynomial adjustment cost (PAC) framework.
- QUEST and GIMF use annual versions; others use quarterly versions.
- Table 1 summarizes features including Hand-to-Mouth % (examples): FRB-US: 40 percent (US); SIGMA: 50 percent (US); QUEST: 40 percent (US and EU); BoC-GEM: 15 percent (US), 25 percent (EU); GIMF: 25 percent (US and EU); NAWM: 25 percent (US and EU); OECD Fiscal: 25 percent (EU).

### Key findings on fiscal multipliers
- "There is no such thing as a simple fiscal multiplier." The response depends on multiple factors, notably:
  - "the type of fiscal instrument used"
  - "the extent of monetary accommodation of the higher inflation generated by the stimulus"
- Temporary expansionary fiscal actions most effective when the instrument is spending or well-targeted transfers, and when monetary policy is accommodative.
- Permanent stimulus (permanent increase in deficits) is problematic:
  - Permanent stimulus "leads to a long-run contraction in output"
  - Permanent stimulus "substantially reduces short-run fiscal multipliers."
- Structural-model multipliers typically lie in the mid-range of empirical estimates; considerable agreement across models on absolute and relative sizes of different fiscal multipliers.

### Government investment — simulation highlights
- Monetary accommodation substantially amplifies fiscal multipliers:
  - One-year fiscal stimulus, no monetary accommodation: first-year multipliers across six models range between 0.9 and 1.3.
  - Two-year fiscal stimulus with two years of monetary accommodation: spread between largest multiplier (about 2.2 in GIMF) and smallest multiplier (about 1.1 in FRB-US).
- Real interest rate declines with two years of monetary accommodation:
  - GIMF decline of about 2.2 percent.
  - BoC-GEM decline of 1.2 percent.
- Consumption and investment responses:
  - GIMF generally shows largest consumption effects.
  - FRB-US shows largest investment effects.
  - Models with larger shares of hand-to-mouth households show larger consumption effects.
- Temporary vs permanent shocks:
  - Permanent government spending shocks cause large immediate negative wealth effects → multipliers well below one.
  - Temporary (one- or two-year) shocks produce minimal wealth effects and larger direct stimulus to aggregate demand.

### Persistence of stimulus and regional comparisons
- Temporary stimulus generates only small persistence of private demand beyond stimulus period because wealth effects are small; hand-to-mouth and finitely-lived households respond and cease when stimulus expires.
- Some persistence observed in BoC-GEM, GIMF and QUEST driven by productive government investment but effects limited given short duration.
- Europe (models with separate Europe region): first-year multipliers with no monetary accommodation are around 1 across models and in a slightly narrower range than for the United States.
- With two years of fiscal stimulus and two years of monetary accommodation (Europe):
  - OECD Fiscal: about 1.6 on average.
  - QUEST: over 1.5.
  - NAWM: about 1.1.
- Multipliers for Europe lower than U.S. counterparts because real interest rates exhibit much smaller movements due to smaller inflation responses; reflects stronger nominal rigidities (greater inflation inertia) in Europe.

### Role of monetary accommodation
- Moving from no accommodation → one year → two years of accommodation tends to increase multipliers by lowering real interest rates (nominal rates held constant while inflation rises).
- Indirect effects via inflation and real rates vary considerably across models because linkage strength between aggregate demand and inflation differs.
- For the United States: inflationary pressures and real interest rate movements largest in GIMF and BoC-GEM, smallest in FRB-US and NAWM.
- For Europe: largest in GIMF, then generally QUEST, OECD Fiscal and NAWM.
- Overall conclusion: monetary accommodation is less effective in Europe due to stronger nominal rigidities.

### Persistence (expected duration) and multipliers
- Two-year expansion has significantly larger multiplier effects than a one-year expansion even in the first year, but primarily under monetary accommodation because longer persistence raises inflation over a longer period → stronger reduction in real interest rates.
- Permanently expected fiscal expansions typically have much smaller multipliers because they increase the present discounted value of taxes → larger negative wealth effects that crowd out private spending immediately.
- Models restore debt-to-GDP back to baseline after withdrawal of temporary stimulus by reducing transfers, avoiding credibility/sustainability problems in simulations.

### Government spending versus taxes and transfers
- Government investment and government consumption (direct demand) produce larger multipliers than transfers or tax cuts (which operate via disposable income and incentive effects).
- Consistent cross-model results:
  - Multipliers from government investment and consumption (roughly similar) are clearly larger than multipliers from transfers, labor income taxes, consumption taxes and corporate income taxes.
  - Multipliers small for general transfers, labor income taxes and corporate income taxes; somewhat larger for consumption taxes.
  - Targeted transfers approach multipliers similar to government spending.

### Taxes, transfers, and hand-to-mouth behavior
- General transfers:
  - Hand-to-mouth households increase spending strongly in all models.
  - Other (often infinitely-lived) households largely adjust saving; consumption often unafffected.
- Distortionary tax cuts:
  - Temporary labor income tax cuts: output effects not very large; smaller than general transfers under monetary accommodation because they increase potential output and reduce inflationary pressure.
  - Corporate income tax cuts: similar to labor tax cuts in implications.
  - Consumption tax cuts: simulations suggest larger incentives for increased household spending.
- Targeted transfers:
  - Targeting to hand-to-mouth households sharply raises multipliers relative to general transfers.
  - Targeted transfer multipliers are close to (but somewhat lower than) government spending.
  - Increase from targeting greatest in models with lowest percentage of hand-to-mouth households (e.g., BoC-GEM and GIMF), because shifting transfers to a smaller group raises their disposable incomes more.

### United States versus Europe — factor experiments (GIMF)
- GIMF two-year, 1 percent of baseline GDP increase in government consumption with two years of monetary accommodation:
  - Openness (original euro area calibration: exports ≈ 17.4 percent of GDP, imports ≈ 17.5 percent of GDP):
    - Original (more open): real GDP is 1.2 and 1.1 percent higher than baseline in years 1 and 2.
    - Recalibrated (exports/imports half original → more closed): real GDP is 1.3 and 1.2 percent higher than baseline.
    - Conclusion: more closed economy → larger domestic demand share → larger inflation response and larger decline in real interest rates under accommodation → somewhat higher multiplier.
  - Nominal rigidities and automatic stabilizers (U.S. calibrations):
    - Higher nominal rigidities (50 percent higher) → inflation responds less → multiplier significantly lower, especially with two years of accommodation.
    - Larger automatic stabilizers (weight on output gap in fiscal policy rule = 0.49 instead of 0.34) → reduce effect of discretionary fiscal action; overall multiplier decline significant but smaller than effect of higher nominal rigidities.
  - Overall GIMF conclusion: smaller fiscal multipliers in Europe relative to the United States mostly due to higher nominal rigidities in Europe; openness and larger automatic stabilizers play smaller roles.

### Permanently higher deficits and debt — short-run multipliers
- Permanent increases in deficits much less effective short run and can be negative long run.
- Example (GIMF and QUEST): compare one-year government consumption stimulus vs permanent increase in government consumption equal to 1 percent of baseline GDP.
  - Permanent increase leads to permanent increase in interest-inclusive deficit to GDP ratio equal to 1 percent of GDP; long run implies a 20 percent increase in debt-to-GDP ratio (given nominal growth assumptions).
  - Labor income taxes adjusted in long run to service interest charges and spending.
  - No monetary accommodation in these long-run experiments.
- Results (Figure 90 summary):
  - Temporary stimulus:
    - One-year multiplier ≈ 1.05 in GIMF and 0.8 in QUEST.
  - Permanent change:
    - First-year multiplier ≈ 0.7 in GIMF and 0.3 in QUEST.
    - Numbers fall to 0.5 and < 0.1 respectively in second year.
    - Multipliers turn negative in the long run due to higher distortionary taxes (both models) and higher real interest rates (in GIMF).
- Mechanisms:
  1. Permanent stimulus raises present discounted value of taxes → negative wealth effect → immediate crowding out of private demand.
  2. Distortionary taxes in long run reduce potential GDP (corporate income taxes > labor income taxes).
  3. In GIMF, finitely-lived households view increased government debt as net worth → crowds out other investment and raises world real interest rate → larger negative long-run effects.

### Permanently higher deficits and long-run crowding out
- GIMF simulation: permanent 0.5 percent increase in interest-inclusive deficits → increases long-run government debt by 10 percent of GDP.
- GIMF calibration: a one percentage point increase in U.S. government debt-to-GDP ratio implies approximately one basis point increase in U.S. and world real interest rate (lower bound of literature range 1 to 6 basis points per one percentage point increase).
- QUEST and OECD Fiscal include endogenous government debt risk premium (applies to government debt interest payments in QUEST; to economy-wide real interest rate in OECD Fiscal and GIMF).
- Long-run crowding out arises via higher distortionary taxes and, in models with risk premia or finitely-lived agents, via higher world real interest rates.

### Effects of financing a 0.5 percent of GDP fiscal package
- Additional government debt crowds out saving in physical capital and net foreign assets, causing the world real interest rate to rise by 9 to 11 basis points.
- This contributes to a decline in global long-run real GDP of between 0.3 percent and 0.7 percent.
- Effects on real GDP in the United States are significantly larger than in the rest of the world.
- When financed by taxes, differences are larger because tax distortions increase in the United States but not elsewhere.
- Long-run GDP effects by tax type (United States; rest of the world):
  - Corporate income taxes: -0.71 (United States), -0.23 (rest of the world).
  - Higher labor income taxes: -0.48 (United States), -0.21 (rest of the world).
  - Consumption taxes: -0.38 (United States), -0.18 (rest of the world).

### Effects of G-20 fiscal packages (2009–2010) — composition and simulation overview
- Data compiled by IMF staff, as of April 20, 2009.
- Regional package sizes and dominant composition:
  - Largest announced packages: Japan, emerging Asia, and the United States.
  - Smallest packages: G20 countries in the euro area, Africa, and Latin America.
  - Japan: general and targeted transfers dominate.
  - Emerging Asia: government investment spending dominates.
  - United States: government consumption, targeted transfers, and income tax cuts dominate.
- Transfers under social safety net treated as targeted transfers for simulations.
- Figure 92 reports GDP effects simulated in BoC-GEM, GIMF, and QUEST under two monetary assumptions:
  - Two years of monetary accommodation.
  - No monetary accommodation.
- Key simulation findings:
  - All models show considerable GDP impact, especially under monetary accommodation.
  - Withdrawal of fiscal stimulus at end-2010 results in an appreciable decline in GDP deviation from baseline.
  - Under no accommodation, effects are small and similar across models; under accommodation, BoC-GEM shows largest effects, QUEST and GIMF similar.
  - Cross-model differences driven primarily by responsiveness of inflation to demand and supply.

### Principal conclusions and policy implications
- Four key conclusions from the seven policy models:
  - Fiscal policy can have sizeable output multipliers, particularly for spending and targeted transfers.
  - Effectiveness is largest when monetary policy supports fiscal actions by accommodating stimulative measures (holding interest rates constant for some period).
  - More persistent stimulus measured in years (rather than decades) is more effective if monetary policy remains accommodative.
  - Permanent fiscal stimulus has significantly lower multipliers at the outset and negative output effects in the long run.
- Policy implications:
  - Fiscal policy must be conducted responsibly to maintain sustainability and credibility.
  - Governments should reduce debt-to-GDP ratios in favorable times to create fiscal space for stimulative actions when needed.
  - Implementation lags are less important in the expected duration of the current downturn than in a typical downturn.

*Source: _wp1073 (IMF staff analysis; excerpted content).*

### References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   26

### _wp1073 - References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   26

### Context and motivation
- The global economy experienced "large negative demand shocks" driven by "sharp declines in house and stock prices and a tightening of financial conditions."
- Policy responses included measures to deal with liquidity and solvency problems in financial institutions, central banks reducing interest rates "to unprecedented levels," and use of "quantitative easing and qualitative or credit easing."
- Despite these measures, "credit remained tight and aggregate demand in many countries continued to weaken rapidly," raising concern about "deep and prolonged recession."
- With scope for further monetary stimulus limited, "attention turned to fiscal policy."

### Analytical approach and models
- The paper uses "seven structural models of national economies and of the global economy" that have been "extensively used and tested" at institutions including "the U.S. Federal Reserve, the European Central Bank, the International Monetary Fund, the European Commission, the OECD and the Bank of Canada."
- Comparing outputs across these "diverse models" is used to check "the robustness of the predictions produced by state-of-the-art macroeconomic models."
- Structural models are emphasized as "well-equipped to assess the impact of monetary accommodation," in contrast to many empirical estimated models designed for "normal business cycle conditions" where central banks would more aggressively raise interest rates.

### Key findings
- "There is no such thing as a simple fiscal multiplier." The response to temporary discretionary fiscal stimulus depends on multiple factors.
- Important determinants of the size of multipliers include:
  - "the type of fiscal instrument used"
  - "the extent of monetary accommodation of the higher inflation generated by the stimulus"
- "Temporary expansionary fiscal actions are most effective when the fiscal instrument is spending or well-targeted transfers, and when in addition monetary policy is accommodative."
- "Permanent stimulus, that is a permanent increase in deficits, is much more problematic than temporary stimulus."
  - Permanent stimulus "leads to a long-run contraction in output"
  - Permanent stimulus "substantially reduces short-run fiscal multipliers."
- The paper finds that "the G20 stimulus should have significant effects on global GDP in 2009 and 2010."

### Policy implications and emphasis
- Short-run effectiveness of fiscal stimulus critically depends on instrument choice: direct spending and well-targeted transfers outperform tax-based instruments in generating immediate demand effects.
- Monetary accommodation enhances the effectiveness of temporary fiscal stimulus by allowing higher inflation without immediate policy tightening.
- Policymakers should distinguish clearly between temporary and permanent fiscal actions: temporary measures can support demand during severe downturns, while permanent increases in deficits risk adverse long-run effects and smaller short-run payoffs.
- Cross-model agreement and identification of model differences provide guidance for urgent policy decisions in environments where standard empirical results (based on normal monetary responses) may be less applicable.

*Source: _wp1073 - References . . . . . . . . . . . . . . . . . . . . . . . . . . . .   26*

### Section III introduces the seven structural models, and the seven standardized

### _wp1073 - Section III introduces the seven structural models, and the seven standardized

### II. Fiscal Multipliers: Empirical and Model-Based Evidence
- Empirical evidence and reduced-form studies produce a very broad range of fiscal multipliers for both government spending shocks and discretionary tax changes.
- Select empirical findings:
  - Blanchard and Perotti (2002), and Romer and Romer (2008): a fiscal stimulus of one percent of GDP increases GDP by close to one percent on impact and by as much as 2 to 3 percent when the effect peaks a few years later.
  - Perotti (2005): much smaller multipliers for European countries using the same identification strategy.
  - Cross-country studies: often find small multipliers and in some cases multipliers with a negative sign (Christiansen 2008).
  - Mountford and Uhlig (2009): substantial multipliers for the United States comparable to Blanchard and Perotti (2002); multipliers associated with tax cuts are much higher than those associated with changes in spending; private consumption does not react much to increases in government spending, implying a low spending multiplier.
  - Blanchard and Perotti (2002) and GalÌ, LÛpez-Salido and VallÈs (2007): private consumption rises significantly after a positive spending shock, yielding larger spending multipliers.
- Four major limitations of empirical studies:
  - Small amount of identifying information leads to considerable uncertainty.
  - Possibility of omitted variable bias and reverse causation (two-way linkages between economic activity and fiscal balances).
  - Insufficient identifying information to study interactions (monetary–fiscal interaction, different fiscal instruments, automatic stabilizers vs discretionary stimulus, import leakages, financing constraints, etc.).
  - Many fiscal actions are anticipated prior to implementation; failure to account for anticipation can distort econometric results (Leeper, Walker and Yang 2009).
- Structural models provide complementary information:
  - Identified using more than fiscal policy variation; calibration and model structure incorporate a variety of empirical evidence.
  - Fiscal multipliers in the structural models considered tend to lie in the mid-range of the empirical literature.
  - There is considerable agreement across models on both absolute and relative sizes of different fiscal multipliers.
  - Structural-model analysis clarifies elements important for enhancing effectiveness of stimulative fiscal actions.
- Comparisons with recent theoretical work:
  - Cogan and others (2009) claim policy models produce smaller multipliers; authors find FRB-US broadly consistent with other models used here.
  - Difference partly due to inclusion of hand-to-mouth agents in comparison models (absent in Smets and Wouters (2007)).
  - Distinction between temporary and permanent shocks matters: this paper focuses on impact multipliers of temporary shocks (smaller model differences), and Section V compares temporary vs permanent shocks (permanent shocks generate larger negative wealth effects reducing initial multipliers).
  - Corsetti and others (2009): anticipation of post-stimulus spending reversals can crowd-in private consumption — consistent with design of temporary stimulus here.
  - Christiano and others (2009): government spending multiplier is much larger when accompanied by monetary accommodation.

### III. Multipliers, Instruments, and Models
A. Definition of Fiscal Multipliers
- Fiscal impulses in experiments are normalized so the discretionary shock equals an increase in expenditures or a decline in revenues equal to 1 percent of baseline, pre-stimulus GDP, for either one year or two years.
- Government deficits respond endogenously because of automatic stabilizers; post-stimulus change in deficits is less than the discretionary fiscal stimulus.
- Multiplier measurement: the percentage deviation of real GDP from baseline GDP as a result of the fiscal shock.
- Monetary policy:
  - Coordinated global monetary policy response is assumed.
  - Monetary policy in each country follows an interest rate rule.
  - Interest rates are either allowed to adjust freely in line with the central bank’s reaction function or are held fixed for one or two years.
- Monetary accommodation vs reaction:
  - If economy is at/near capacity, monetary policy would raise interest rates (per reaction function) to offset inflationary effects.
  - If economy is in serious recession with policy rates at their floor and risk of deflation, appropriate to hold interest rates constant during fiscal expansion (monetary accommodation).
  - Risk: prolonged monetary accommodation can unanchor inflation expectations; extent possible depends on central bank policy credibility.

B. The Seven Fiscal Instruments
- The experiments examine changes in seven fiscal instruments:
  - an increase in government investment expenditures
  - an increase in government consumption expenditures
  - an increase in general lump sum transfers
  - an increase in lump sum transfers targeted to hand-to-mouth households
  - a decrease in labor income tax rates
  - a decrease in consumption tax rates
  - a decrease in corporate income tax rates
- Note: definition of hand-to-mouth households varies across models (e.g., agents unable to borrow or lend; limitation to use only cash for consumption-smoothing; credit constraint based on housing wealth).

C. The Seven Structural Models
- Six institutions provided seven models: European Commission (QUEST), International Monetary Fund (GIMF), Board of Governors of the Federal Reserve System (FRB-US and SIGMA), Bank of Canada (BoC-GEM), European Central Bank (NAWM), and OECD (OECD Fiscal).
- Coverage and model types:
  - Four global models: BoC-GEM, GIMF, QUEST, SIGMA.
  - NAWM: two-region model (United States and the euro area).
  - FRB-US: U.S.-only model.
  - OECD Fiscal: euro-area-only model.
  - Six models are DSGE; FRB-US is based on the polynomial adjustment cost (PAC) framework.
  - QUEST and GIMF use annual versions for simulations; the others use quarterly versions.
- Table 1 (in source) summarizes key model features: number of regions, proportion of hand-to-mouth households, monetary policy rule type, special features, and references.

### IV. Fiscal Multipliers for Temporary Stimulus
A. Introduction to Simulation Results
- Figures 1–42: effects on U.S. real GDP, inflation, real interest rates, consumption and investment for U.S. fiscal stimulus.
  - Simulations cover one year of fiscal stimulus (Figures 1–21) and two years (Figures 22–42).
  - For each duration there are three charts per fiscal instrument comparing: no monetary accommodation (top panel), one year of monetary accommodation (middle panel), two years of monetary accommodation (bottom panel).
  - Not all models are used for all experiments (e.g., OECD Fiscal not used for U.S. shocks; consumption tax cuts modeled only in QUEST, GIMF, NAWM; corporate tax cuts in QUEST, GIMF, SIGMA, BoC-GEM).
- Figures 43–84: same results for the euro area or EU depending on model (GIMF, NAWM, OECD Fiscal focus on the euro area; QUEST focuses on the European Union; EU used henceforth to represent both).
- Figures 85–87: two years of fiscal stimulus in government investment in Europe and the United States with two years of monetary accommodation; stimulus applied in each area separately (not simultaneous) to compare domestic multipliers.
- Factors examined that drive multiplier magnitude:
  - (i) extent of monetary accommodation
  - (ii) persistence of fiscal stimulus
  - (iii) type of fiscal instrument and its channels
  - (iv) population share of hand-to-mouth households
  - (v) effect of targeting transfers to hand-to-mouth households
  - (vi) role of economic openness
  - (vii) degree of nominal rigidity of prices and wages
  - (viii) size of automatic stabilizers

B. Government Investment — Detailed Discussion
- Monetary accommodation substantially amplifies fiscal multipliers:
  - One-year fiscal stimulus, no monetary accommodation: first-year multipliers across six models range between 0.9 and 1.3.
  - Moving from no accommodation → one year → two years of monetary accommodation increases multipliers and model dispersion.
  - Two-year fiscal stimulus with two years of monetary accommodation: spread between largest multiplier (about 2.2 in GIMF) and smallest multiplier (about 1.1 in FRB-US).
- Differences across models driven largely by effects on inflation and real interest rates:
  - For one-year stimulus, inflation effects differ considerably across models; GIMF shows the largest inflation effect, especially with monetary accommodation (reflecting somewhat smaller nominal rigidities in GIMF).
  - Real interest rate declines with two years of monetary accommodation: GIMF decline of about 2.2 percent, BoC-GEM decline of 1.2 percent.
  - Variation in real interest rate movements across models is also significant under no monetary accommodation, reflecting different embedded reaction functions.
- Consumption and investment responses vary by model:
  - GIMF generally shows the largest effects on consumption.
  - FRB-US shows the largest effects on investment.
  - Models with a significant share of hand-to-mouth households (or credit-constrained and finitely-lived households) show larger consumption effects.
  - NAWM’s hand-to-mouth agents can smooth consumption more effectively because they can use cash for that purpose.
- Temporary vs permanent shocks:
  - Permanent government spending shocks cause large immediate negative wealth effects (anticipation of higher future taxes), yielding multipliers well below one and declining immediately (Cogan and others (2009)).
  - By contrast, temporary stimulus (one or two years) produces minimal wealth effects and larger direct stimulus to aggregate demand; focus here is on temporary shocks and their impact multipliers.

* _wp1073 - Section III introduces the seven structural models, and the seven standardized*

### Section V.

### Section V.

### Persistence of the stimulus and regional comparisons
- Temporary stimulus generates only small persistence of private demand beyond the stimulus period because wealth e§ects are small; only hand-to-mouth (and to some extent Önitely-lived) households respond signiÖcantly to income e§ects and cease when the stimulus expires.
- Some persistence is observed in BoC-GEM, GIMF and QUEST driven by productive government investment with highly persistent output e§ects, but these e§ects are not very large given the short stimulus duration.
- For Europe (models with a separate Europe region), first-year multipliers with no monetary accommodation are around 1 across models and in a slightly narrower range than for the United States.
- With two years of Öscal stimulus and two years of monetary accommodation (Europe):
  - OECD Fiscal: about 1.6 on average.
  - QUEST: over 1.5.
  - NAWM: about 1.1.
- Multipliers for Europe are lower than U.S. counterparts because real interest rates exhibit much smaller movements due to smaller ináation responses; this reflects assumptions of stronger nominal rigidities (greater ináation inertia) in Europe.
- The three models that simulate both U.S. and Europe (QUEST, NAWM and GIMF) assume signiÖcant di§erences in nominal rigidities between regions.
- European consumption and investment:
  - Consumption is usually more important.
  - OECD Fiscal is an exception where investment expands more strongly because of a stronger link between the real interest rate and investment.

### The role of monetary accommodation
- Moving from no monetary accommodation to one year and then two years of monetary accommodation tends to increase multipliers.
- Mechanism:
  - Fiscal stimulus raises aggregate demand → increases ináationary pressure → movement in real interest rates.
  - No accommodation: nominal rates rise with ináation → real interest rates rise → partially o§set fiscal stimulus e§ect on GDP.
  - With accommodation: nominal rates held constant → higher ináation lowers real interest rates → accommodative monetary policy complements and intensiÖes fiscal stimulus e§ects on real GDP.
- Indirect e§ects (via ináation and real rates) vary more across models than direct demand e§ects because linkage strength between aggregate demand and ináation di§ers across models.
- For the United States:
  - Ináationary pressures and real interest rate movements are largest in GIMF and BoC-GEM, smallest in FRB-US and NAWM.
- For Europe:
  - Largest in GIMF, then generally QUEST, OECD Fiscal and NAWM.
- Overall: monetary accommodation is less e§ective in Europe, mostly because of stronger nominal rigidities than in the United States.

### Persistence of fiscal stimulus (expected duration)
- Multiplier size depends on expected persistence of the fiscal measure.
- Focus: fiscal expansions perceived as temporary (no long-run crowding out).
- A two-year expansion has signiÖcantly larger multiplier e§ects than a one-year expansion even in the Örst year, but only under monetary accommodation because a more persistent boost creates higher ináation over a longer period → stronger reduction in real interest rates.
- Examples: expectation of two years of stimulus increases first-year multipliers substantially (both U.S. and Europe), but increases are smaller for Europe due to stronger nominal rigidities.
- Permanently expected fiscal expansions typically have much smaller multipliers because they increase the present discounted value of taxes → larger negative wealth e§ect → crowding out of private spending from the outset.
- Conclusion: stimulus is most e§ective over an intermediate horizon and in combination with monetary accommodation, where direct demand/income e§ects and interactions with monetary policy dominate wealth e§ects.
- Note on sustainability: following withdrawal of temporary stimulus in the models, transfers are reduced to bring the debt-to-GDP ratio back to baseline, avoiding credibility/sustainability problems.

### Government spending versus taxes and transfers
- Di§erent fiscal measures operate through di§erent channels:
  - Government investment and government consumption impact directly on aggregate demand.
  - Increases in transfers and reductions in taxes operate mainly via personal disposable incomes and incentive e§ects (for distortionary taxes).
- Simulations conÖrm literature consensus: measures with direct e§ects on aggregate demand have larger multipliers than measures acting through private spending behavior.
- Consistent results across models:
  - Multipliers from government investment and consumption (roughly similar in size) are clearly larger than multipliers from transfers, labor income taxes, consumption taxes and corporate income taxes.
  - Multipliers are small for general transfers, labor income taxes and corporate income taxes; somewhat larger (but still small relative to government spending) for consumption taxes.
  - Targeted transfers come close to having multipliers similar to government spending (discussed below).

### Di§erent taxes and transfers
- Responses to tax/transfer-based stimulus depend critically on:
  - Behavior of hand-to-mouth households.
  - Relative distortions caused by di§erent fiscal instruments.
- General transfers (non-distortionary):
  - Hand-to-mouth households increase spending strongly in all models.
  - Other households (often inÖnitely-lived) largely adjust saving, seeing future transfer cuts as o§setting current increases; in many models their consumption is una§ected.
  - Exceptions:
    - GIMF: Önitely-lived households interpret part of transfers as lifetime wealth increases → some e§ect on other households.
    - BoC-GEM: non-Ricardian feature via link between net foreign assets and government debt produces some e§ect on other households.
  - The share and constraint nature of hand-to-mouth households are critical determinants of economy response.
- Distortionary tax cuts:
  - Have supply e§ects and thereby ináation and real interest rate e§ects that di§er across instruments.
  - Temporary cuts in labour income tax rates:
    - Output e§ects are not very large; smaller than general transfers under monetary accommodation because they increase potential output → reduce ináationary e§ects and thereby reduce monetary accommodation e§ectiveness.
  - Cuts in corporate income taxes: similar comments as labour taxes.
  - Temporary cuts in consumption taxes: simulations suggest larger incentives for increased household spending.

### General transfers versus targeted transfers
- Hand-to-mouth households have much higher marginal propensity to consume out of current income than other households.
- Implications:
  - Models with higher shares of hand-to-mouth households have higher multipliers for general transfers and taxes.
  - Transfers targeted to hand-to-mouth households are much more powerful than general transfers.
- Shares of hand-to-mouth households (examples for US and EU in models):
  - FRB-US: 40 percent for US.
  - SIGMA: 50 percent for US.
  - QUEST: 40 percent for US and EU (includes both hand-to-mouth and credit-constrained households).
  - BoC-GEM: 15 percent for US, 25 percent for EU.
  - GIMF: 25 percent for US and EU.
  - NAWM: 25 percent for US and EU.
  - OECD Fiscal: 25 percent for EU.
- Temporary increases in targeted transfers:
  - Multipliers increase sharply relative to general transfers.
  - Targeted transfers multipliers are close to (but somewhat lower than) those of government spending.
  - Increase from targeting is greatest in models with the lowest percentage of hand-to-mouth households (especially BoC-GEM and GIMF) because shifting transfers to a smaller targeted group raises disposable incomes of targeted groups more.

### United States versus Europe
- Temporary fiscal stimulus has greater e§ects on output, ináation, and real interest rates in the United States than in Europe.
- Hypothesized contributing factors:
  1. Europe is more open → larger leakage to imports.
  2. Automatic stabilizers are larger in Europe → more leakage from discretionary stimulus into higher taxes and lower transfers.
  3. Greater nominal rigidities in Europe → lower ináation response to expansionary fiscal actions → smaller downward movements in real interest rates under monetary accommodation.
- GIMF experiments (two-year, 1 percent of baseline GDP increase in government consumption with two years of monetary accommodation) assess factor importance:
  - Openness (euro area calibration):
    - Original calibration: exports ≈ 17.4 percent of GDP, imports ≈ 17.5 percent of GDP.
    - Results with original (more open): real GDP is 1.2 and 1.1 percent higher than baseline in years 1 and 2.
    - Recalibrated (exports/imports half of original → more closed): real GDP is 1.3 and 1.2 percent higher than baseline.
    - Conclusion: more closed economy → demand falls more on domestic sector → larger ináation response and larger decline in real interest rates under accommodation → somewhat higher fiscal multiplier.
  - Nominal rigidities and automatic stabilizers (U.S. calibrations):
    - Three U.S. calibrations examined:
      - Original (top panel).
      - Higher nominal rigidities (50 percent higher than original) equivalent to euro area values (middle panel).
      - Higher automatic stabilizers: weight on output gap in fiscal policy rule equals 0.49 instead of 0.34 (bottom panel).
    - Higher nominal rigidities → ináation responds less to aggregate demand → real interest rates move less under accommodation → multiplier signiÖcantly lower, especially with two years of monetary accommodation. U.S. results with higher nominal rigidities align with GIMF Europe simulations.
    - Larger automatic stabilizers → reduce e§ect of discretionary fiscal action because GDP increase automatically reduces general transfers via the fiscal rule → overall multiplier decline is signiÖcant but smaller than the e§ect of higher nominal rigidities.
  - Overall conclusion in GIMF: smaller fiscal multipliers in Europe relative to the United States are mostly due to higher nominal rigidities in Europe; openness and larger automatic stabilizers play smaller roles.

### V. Permanently higher deÖcits and debt

#### A. Permanently higher deÖcits and short-run multipliers
- Permanent increases in fiscal deÖcits are much less e§ective in the short run than temporary increases; long-run consequences can be negative.
- Example focus: United States (results qualitatively hold for other regions).
- Models used: GIMF and QUEST.
  - GIMF includes hand-to-mouth and Önitely-lived households.
  - QUEST: remaining households are inÖnitely-lived (QUEST is Ricardian in the long run but not in the short run due to hand-to-mouth and credit-constrained households).
- Experiment: compare one-year fiscal stimulus in government consumption with a permanent change in government consumption of the same size (one percent of baseline GDP).
  - Permanent increase accompanied by permanent increase in interest-inclusive deÖcit to GDP ratio equal to one percent of GDP.
  - Given assumptions about nominal growth rates, this leads in the long run to a 20 percent increase in the debt to GDP ratio.
  - Labor income taxes are adjusted to service interest charges and the increase in government spending in the long run.
  - No monetary accommodation in these long-run experiments.
- Results (Figure 90 summary):
  - Temporary fiscal stimulus:
    - One-year multiplier ≈ 1.05 in GIMF and 0.8 in QUEST.
    - After withdrawal, GDP remains slightly below baseline for some period to bring ináation back to baseline.
  - Permanent change:
    - First-year multiplier ≈ 0.7 in GIMF and 0.3 in QUEST (considerably less than temporary stimulus).
    - Numbers fall to 0.5 and < 0.1 respectively in second year.
    - In both models multipliers turn negative in the long run due to higher distortionary taxes (both models) and higher real interest rates (in GIMF).
  - Note: Cogan and others (2009) report multipliers similar to these permanent-case results; their skepticism stems partly from focusing on permanent rather than temporary increases.
- Mechanisms explaining di§erences between temporary and permanent stimulus:
  1. Present discounted value of taxes rises with permanent stimulus → negative wealth e§ect immediately crowds out private demand → main reason for much smaller first-year multiplier and subsequent fall towards zero.
  2. Distortionary taxes in the long run exacerbate crowding out; more distortionary taxes have larger e§ects on potential GDP (corporate income taxes > labor income taxes due to higher long-run supply elasticity of capital). Long-run cuts in government investment to stabilize debt would reduce potential output via infrastructure/productivity losses.
  3. In GIMF, Önitely-lived households perceive part of increased government debt as net worth → crowds out alternative investments (physical capital and net foreign assets) and raises the world real interest rate permanently → more negative long-run output e§ects and reduced short-run multipliers.

#### B. Permanently higher deÖcits and long-run crowding out
- GIMF simulation: permanent 0.5 percent increase in interest-inclusive deÖcits → increases long-run government debt by 10 percent of GDP.
- GIMF calibration: a one percentage point increase in U.S. government debt-to-GDP ratio implies approximately one basis point increase in U.S. and world real interest rate (at the lower end of estimates reported in the literature).
  - Literature range cited: 1 to 6 basis points per one percentage point increase in debt-to-GDP.
- Other models:
  - QUEST and OECD Fiscal include an endogenous government debt risk premium.
    - In QUEST the premium applies to government debt interest payments.
    - In OECD Fiscal (as in GIMF) it applies to the economy-wide real interest rate.
  - All models can still generate long-run crowding out, but in models without an explicit debt risk premium this may arise primarily from higher distortionary taxes in the long run.
- Simulation setup: deficits initially increased through reduction in taxes or increase in transfers; as debt and interest charges rise, the primary deficit must fall to keep the overall deficit increase at the intended level (experiment description continues beyond provided text).

*Source: _wp1073 - Section V.*

### 0.5 percent of GDP, and this is assumed to be implemented through an o§setting increase

### _wp1073 - 0.5 percent of GDP, and this is assumed to be implemented through an o§setting increase

### Effects of financing a 0.5 percent of GDP fiscal package
- The additional government debt crowds out saving in physical capital and (net) foreign assets, causing the world real interest rate to rise by 9 to 11 basis points.
- This contributes to a decline in global long-run real GDP of between 0.3 percent and 0.7 percent.
- The effects on real GDP in the United States are significantly larger than in the rest of the world.
- For lower long-run transfers the simulated long-run reductions in consumption and GDP reflect negative wealth effects on U.S. consumption demand from two sources:
  - The United States pays higher interest charges on a pre-existing stock of foreign liabilities.
  - Crowding out adds further to that stock of liabilities.
- When financed by taxes, differences between the United States and the rest of the world are larger because tax distortions increase in the United States but not elsewhere.
- Long-run GDP effects by tax type:
  - Corporate income taxes: -0.71 (United States), -0.23 (rest of the world).
  - Higher labor income taxes: -0.48 (United States), -0.21 (rest of the world).
  - Consumption taxes: -0.38 (United States), -0.18 (rest of the world).
- These rankings correspond closely to the public finance literature on relative distortionary effects of alternative taxes.

### Effects of G-20 fiscal packages (2009–2010)
- Table 3 sets out components of fiscal stimulus packages implemented over 2009 and 2010 by the G20 countries (data compiled by IMF staff, as of April 20, 2009).
- Regional package sizes and dominant composition:
  - Largest announced packages: Japan, emerging Asia, and the United States.
  - Smallest packages: G20 countries in the euro area, Africa, and Latin America.
  - Japan: general and targeted transfers dominate.
  - Emerging Asia: government investment spending dominates.
  - United States: government consumption, targeted transfers, and income tax cuts dominate.
- In none of the regions do increases in government consumption play a predominant role.
- Transfers categorized under social safety net are treated as targeted transfers for simulation purposes.

### Model simulations and monetary accommodation scenarios
- Figure 92 reports GDP effects simulated in three models: BoC-GEM, GIMF, and QUEST.
- Two monetary policy assumptions:
  - Two years of monetary accommodation (interest rates held constant for some period).
  - No monetary accommodation.
- Key simulation findings:
  - All models show a considerable impact on GDP, especially under monetary accommodation.
  - Withdrawal of fiscal stimulus at the end of 2010 results in an appreciable decline in the deviation of GDP from its baseline.
  - Differences across models:
    - Under no monetary accommodation, differences in effects are very small across models.
    - Under monetary accommodation, differences are considerably larger: BoC-GEM has the largest effects while QUEST and GIMF are relatively similar.
    - Cross-model differences stem primarily from responsiveness of the inflation rate to changes in aggregate demand and aggregate supply.
- The simulations suggest temporary fiscal stimulus can play an important role in a prolonged downturn.

### Principal conclusions and policy implications
- Four key conclusions from the seven policy models:
  - Fiscal policy can have sizeable output multipliers, particularly for spending and targeted transfers.
  - Effectiveness of fiscal policy is largest when monetary policy supports fiscal actions by accommodating stimulative fiscal measures (holding interest rates constant for some period).
  - More persistent stimulus measured in years (rather than decades) is even more effective if monetary policy remains accommodative.
  - Permanent fiscal stimulus has significantly lower multipliers at the outset and has negative output effects in the long run.
- Policy implications:
  - Fiscal policy must be conducted responsibly so that the policy track is sustainable and fiscal authorities maintain credibility.
  - Failure to act responsibly carries both shorter-run and longer-run unfavorable outcomes.
  - Governments should reduce their debt to GDP ratios in economically favorable times to create fiscal space for stimulative actions when needed.
- Implementation lags are less important in the expected duration of the current downturn than in a more typical economic downturn.

*Source: IMF staff analysis (excerpted content).*

### References

### _wp1073 - References

### Selected references cited
- Alichi, A., H. Chen, K. Clinton, C. Freedman, M.J. Johnson, O. Kamenik, T. Ki∏sinbay and D. Laxton (2009), ìInáation Targeting Under Imperfect Policy Credibility,î IMF Working Paper, WP 09/94.
- Blanchard, O. and R. Perotti (2002), ìAn Empirical Characterization of the Dynamic E§ects of Changes in Government Spending and Taxes on Outputî, Quarterly Journal of Economics, 117, 1329-68.
- Brayton, F., and P. Tinsley (1996), ìA Guide to FRB/US: A Macroeconomic Model of the United Statesî, Board of Governors of the Federal Reserve System Finance and Economics Discussion Series 96-42.
- Christiano, L., M. Eichenbaum and S. Rebelo (2009), ìWhen is the Government Spending Multiplier Large?î, Working Paper, Northwestern University.
- Christiansen, L. (2008), ìFiscal MultipliersñA Review of the Literatureî, Appendix II to IMF Sta§ Position Note 08/01, Fiscal Policy for the Crisis (Washington, D.C.: International Monetary Fund).
- Coenen, G., P. McAdam, and R. Straub (2008), ìTax Reform and Labour-Market Performance in the Euro Area: A Simulation-Based Analysis Using the New Area-Wide Modelî, Journal of Economic Dynamics and Control, 32, 2543-83.
- Cogan, J.F., T. Cwik, J.B. Taylor and V. Wieland (2009), ìNew Keynesian versus Old Keynesian Government Spending Multipliersî, NBER Working Paper 14782.
- Corsetti, G., A. Meier and G. M ̧ller (2009), ìFiscal Stimulus with Spending Reversalsî, IMF Working Papers, WP/09/106.
- Decressin, J. and D. Laxton (2009), ìGauging Risks for Deáationî, IMF Sta§ Position Note No. 09/01 (Washington, D.C.: International Monetary Fund).
- Engen, E.M. and R.G. Hubbard (2004), ìFederal Government Debt and Interest Ratesî, NBER Macroeconomics Annual, 19, 83-138.
- Erceg, C., L. Guerrieri, and C. Gust (2005), ìSIGMA: A New Open Economy Model for Policy Analysisî, Board of Governors of the Federal Reserve System International Finance Discussion Paper No. 835.
- Freedman, C., M. Kumhof, D. Laxton, D. Muir and S. Mursula (2010), ìFiscal Multipliers Galoreî, IMF Working Paper, forthcoming.
- Furceri, D., and A. Mourougane (2010), ìThe E§ects of Fiscal Policy on Output and Debt Sustainability in the Euro Area: A DSGE Analysisî, OECD Working Paper (forthcoming).
- Gale, W. and P. Orszag (2004), ìBudget DeÖcits, National Saving, and Interest Ratesî, Brookings Papers on Economic Activity, 2, 101-187.
- GalÌ, J., D. LÛpez-Salido and J. VallÈs (2007), ìUnderstanding the E§ects of Government Spending on Consumptionî, Journal of the European Economic Association, 5(1), 227-70.
- Giavazzi, F. and M. Pagano (1990), ìCan Severe Fiscal Contractions be Expansionary: Tales of Two Small European Countriesî, NBER Macroeconomics Annual, 75-122.
- Hemming, R., M. Kell,.and S. Mahfouz (2002), ìThe E§ectiveness of Fiscal Policy in Stimulating Economic Activity - A Review of the Literatureî, IMF Working Papers, WP/02/208.
- IMF (2009a), ìGlobal Economic Slump Challenges Policiesî, World Economic Outlook Update, January, World Economics and Financial Surveys (Washington, DC).
- IMF (2009b), ìThe State of Public Finances: Outlook and Medium-Term Policies After the 2008 Crisisî, Fiscal Axoairs Department. March 6. (Washington, DC).
- Kumhof, M. and D. Laxton (2007), ìA Party Without a Hangover? On the E§ects of U.S. Fiscal DeÖcitsî, IMF Working Papers, WP/07/202.
- Kumhof, M., D. Laxton, D. Muir, and S. Mursula (2010), ìThe Global Integrated Monetary and Fiscal Model - Theoretical Structureî, IMF Working Paper, WP/10/34.
- Lalonde, R. and D. Muir (2007), ìThe Bank of Canadaís Version of the Global Economy Model (BoC-GEM)î, Technical Report No. 98. (Ottawa: Bank of Canada.)
- Laubach, T. (2003), ìNew Evidence on the Interest Rate E§ects of Budget DeÖcits and Debtî, Finance and Economics Discussion Series 2003-12, Board of Governors of the Federal Reserve System.
- Leeper, E., T. Walker and S. Yang (2009), ìFiscal Foresight and Information Flowsî, NBER Working Paper No. 14630.
- Lipsky, J. (2008), ìThe Current Macroeconomic Outlook 2009: Issues of Systemic Stabilityî, Speech for the Devisen Forum 2008.
- Mountford, A. and H. Uhlig (2009), ìWhat Are the E§ects of Fiscal Policy Shocks?î, NBER Working Paper No. 14551.
- Perotti, R. (2005), ìEstimating the E§ects of Fiscal Policy in OECD Countriesî, CEPR Discussion Paper No. 4842.
- Ratto, M., W. Roeger, and J. in ít Veld (2009), ìQUEST III: An Estimated Open-Economy DSGE Model of the Euro Area with Fiscal and Monetary Policyî, Economic Modelling, 26(1), 222-33.
- Roeger W. and J. in ít Veld (2009), ìFiscal Policy with Credit Constrained Householdsî, European Economy Economic Papers No.357.
- Romer, C. and D. Romer (2008), ìThe Macroeconomic E§ects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocksî, Working Paper, University of Califorina at Berkeley.
- Smets, F. and R. Wouters (2007), ìShocks and Frictions in U.S. Business Cycles: A Bayesian DSGE Approachî, American Economic Review, 97(3), 506-606.
- Spilimbergo, A., S. Symansky, O. Blanchard, and C. Cottarelli (2008), ìFiscal Policy For the Crisisî, IMF Sta§ Position Note 08/01.
- Spilimbergo, A., S. Symansky, and M. Schindler (2009), ìFiscal Multipliersî, IMF Sta§ Position Note 09/11.

### Figures: scope and recurring themes
- The document contains a comprehensive set of figures (Figure 1 through Figure 91) presenting model-based comparisons of fiscal stimulus effects across:
  - Countries/regions: United States; Euro Area / European Union; G20; Rest of the World; Global.
  - Fiscal instruments: Government Investment, Government Consumption, General Transfers, Targeted Transfers, Labor Income Tax, Consumption Tax, Corporate Income Tax.
  - Outcomes illustrated: Real GDP, Inflation, Real Interest Rate, Consumption, Investment, Real Exchange Rate, Nominal Interest Rate, Real Income, Government Deficit/Debt, Private Saving, Trade/GDP, Current Account/GDP, Real Effective Exchange Rate, Capital/GDP, NFA/GDP.
  - Policy scenarios: No Monetary Accommodation; 1 Year of Monetary Accommodation; 2 Years of Monetary Accommodation.
- Several cross-model comparisons are shown, including model names appearing repeatedly in figure labels: EC's QUEST; IMF's GIMF; ECB's NAWM; Fed's FRB-US; Fed's SIGMA; BoC's GEM; OECD's Fiscal (for some Euro Area figures).

### Table 1: Key Model Features (as listed)
- # of regions, Hand-to-Mouth %, Monetary Policy, Special Policy Features, References
  - QUEST: 3 regions; 20% HTM; Taylor Rule; Households: HTM, CC, productive gov. investment; housing; endogenous gov. debt risk premia; Ratto, Roeger, and in ít Veld (2009); Roeger and in ít Veld (2009).
  - GIMF: 5 regions; 25% IFB***; IFB***; Households: HTM, FIN; productive gov. investment; financial accelerator.; Kumhof and Laxton (2007); Kumhof and others (2010); Freedman and others (2010).
  - FRB-US: 1 region; 40% Taylor Rule; Households: HTM, INF; very detailed breakdown; substantial work on empirics.; Brayton and Tinsley (1996).
  - SIGMA: 2 regions; 50% Taylor Rule; Households: HTM, INF.; Erceg, Guerrieri and Gust (2005).
  - BoC-GEM: 6 regions; 15% IFB; IFB; Households: HTM, INF **; productive gov. investment; separate sectors for oil and non-oil commodities.; Lalonde and Muir (2007); Lalonde, de Resende, and Snudden (2010).
  - NAWM: 2 regions; 25% Taylor Rule; Households: HTM, INF; HTM can smooth consumption through cash.; Coenen, McAdam and Straub(2008).
  - OECD: 1 region; 25% Taylor Rule; Households: HTM, INF; endogenous government debt risk premium.; Furceri and Mourougane (2010).
- Notes:
  - *Households: HTM = hand to mouth; CC = credit constrained; FIN = Önite lives; INF = inÖnitely lived.
  - ** BoC-GEM has a non-Ricardian link between net foreign assets and government debt.
  - *** IFB = ináation-forecast-based rule.

### Table 2: E§ects of a Permanent 10 Percentage Point Increase in the U.S. Government Debt to GDP Ratio
- Scenario: Financed by a Cut in General Transfers
  - Real GDP: US -0.30; RoW -0.17; Global -0.20
  - Real Exchange Rate: US 0.88; RoW -0.88; Global ...
  - Real Interest Rate: US 0.10; RoW 0.10; Global 0.10
  - Current Account to GDP: US -0.32; RoW 0.10; Global ...
  - Investment: US -0.56; RoW -0.42; Global -0.45
  - Goverment Deficit to GDP: US 0.48; RoW -0.00; Global 0.11
  - Private Saving to GDP: US 0.12; RoW 0.04; Global 0.06
  - General Transfers to GDP: US -0.14; RoW -0.06; Global -0.08
- Scenario: Financed by an Increase in Consumption Taxes
  - Real GDP: US -0.38; RoW -0.18; Global -0.23
  - Real Exchange Rate: US 0.79; RoW -0.79; Global ...
  - Real Interest Rate: US 0.10; RoW 0.10; Global 0.10
  - Current Account to GDP: US -0.33; RoW 0.10; Global ...
  - Investment: US -0.64; RoW -0.45; Global -0.49
  - Goverment Deficit to GDP: US 0.48; RoW -0.00; Global 0.11
  - Private Saving to GDP: US 0.11; RoW 0.05; Global 0.06
  - Consumption Tax Rate: US 0.35; RoW 0.00; Global 0.08
- Scenario: Financed by an Increase in Corporate Income Taxes
  - Real GDP: US -0.71; RoW -0.23; Global -0.33
  - Real Exchange Rate: US -0.01; RoW 0.01; Global ...
  - Real Interest Rate: US 0.09; RoW 0.09; Global 0.09
  - Current Account to GDP: US -0.30; RoW 0.09; Global ...
  - Investment: US -1.92; RoW -0.47; Global -0.79
  - Goverment Deficit to GDP: US 0.48; RoW -0.00; Global 0.11
  - Private Saving to GDP: US -0.03; RoW 0.04; Global 0.03
  - Corporate Income Tax Rate: US 1.35; RoW 0.00; Global 0.30
- Scenario: Financed by an Increase in Labor Income Taxes
  - Real GDP: US -0.48; RoW -0.21; Global -0.27
  - Real Exchange Rate: US 0.74; RoW -0.75; Global ...
  - Real Interest Rate: US 0.11; RoW 0.11; Global 0.11
  - Current Account to GDP: US -0.36; RoW 0.11; Global ...
  - Investment: US -0.77; RoW -0.50; Global -0.56
  - Goverment Deficit to GDP: US 0.48; RoW -0.00; Global 0.11
  - Private Saving to GDP: US 0.08; RoW 0.05; Global 0.05
  - Labor Income Tax Rate: US 0.44; RoW 0.00; Global 0.10

### Table 3: G20 Fiscal Stimulus Packages (values: % of domestic GDP)
- 2009 (columns: Social Consump., Labor Gov. Invest., Gov. Net Trans., Social Safety Trans., Labor Tax Cut, Consump. Tax Cut, Corp. Income Tax Cut, TOTAL)
  - United States: 0.44 0.23 0.55 0.09 0.26 0.00 0.41 1.98
  - Euro Area: 0.03 0.27 0.14 0.10 0.19 0.07 0.03 0.83
  - Japan: 0.00 0.32 0.95 1.06 0.04 0.00 0.05 2.42
  - Emerging Asia: 0.22 1.36 0.24 0.08 0.06 0.13 0.07 2.16
  - Other Countries: 0.14 0.14 0.26 0.12 0.04 0.02 0.13 0.85
- 2010 (same column ordering)
  - United States: 0.47 0.33 0.10 0.10 0.55 0.00 0.22 1.77
  - Euro Area: 0.02 0.13 0.07 0.02 0.34 -0.04 0.19 0.73
  - Japan: 0.00 0.58 0.20 0.94 0.03 0.00 0.04 1.79
  - Emerging Asia: 0.22 1.38 0.07 0.00 0.05 0.15 0.14 2.01
  - Other Countries: 0.09 0.04 0.08 0.02 0.07 0.00 0.13 0.43

### Observations evident from the figures and tables (as presented)
- Fiscal stimulus effects are presented for multiple fiscal instruments and across multiple macro models, allowing cross-model comparison of short-run and medium-run impacts on Real GDP, Inflation, Real Interest Rates, Consumption, Investment, and external balances.
- Monetary policy accommodation scenarios (No Monetary Accommodation; 1 Year; 2 Years) are systematically varied in the figures to show interaction effects between fiscal stimulus and monetary policy stance.
- Table 1 highlights differences in model structure (e.g., presence of hand-to-mouth households, credit constraints, inflation-forecast-based rules, financial accelerators, productive government investment, non-Ricardian links).
- Table 2 quantifies the heterogeneous macroeconomic impacts of increasing the U.S. government debt-to-GDP ratio by 10 percentage points under alternative financing instruments, with markedly different effects on Real GDP and Investment depending on the tax instrument used.
- Table 3 documents the composition and size (as % of domestic GDP) of G20 fiscal stimulus packages in 2009 and 2010, showing variation across regions and over time.

*Content compiled from the PDF chapter titled "References" and accompanying figures and tables contained in the supplied source.*

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