On the ease of overstating the fiscal stimulus in the US, 2008-9
This note shows that the aggregate fiscal expenditure stimulus in the United States, properly adjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. While the Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it did not stimulate the aggregate expenditure above its predicted mean. We discuss the implications of limitations on states' ability to run deficits for the design of fiscal stimulus at the federal level. We devote particular attention to intertemporal moral hazard concerns in a federal fiscal system, and ways to address these concerns.
We would like to thank Larry Schembri, Eric Santor, Robert Lavigne, Nii Ayi Armah and Jose F. Ursua for comments and suggestions. The views expressed in this note are personal. No responsibility for them should be attributed to the Bank of Canada or the NBER.