Deficits, Public Debt Dynamics, and Tax and Spending Multipliers - Federal Reserve Bank of New York

Museum & Visits Regional Economy Data & Statistics Careers Blog Press Center

About the New York Fed
- About the New York Fed
- What We Do
- Who We Are
  - Bank Leadership
  - Diversity and Inclusion
- Communities We Serve
- Governance
- More About Us
- At the New York Fed, our mission is to make the U.S. economy stronger and the financial system more stable for all segments of society. We do this by executing monetary policy, providing financial services, supervising banks and conducting research and providing expertise on issues that impact the nation and communities we serve.
  
  The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
  
  Do you have a request for information and records? Learn how to submit it.
  
  Learn about the history of the New York Fed and central banking in the United States through articles, speeches, photos and video.
Markets & Policy Implementation

Economic Research
- Economic Research
- U.S. Economy
  - Consumer Expectations & Behavior
  - Growth & Inflation
  - Labor Market
  - Financial Stability
  - Banking
- REGIONAL ECONOMY
- RESEARCHERS
  - PUBLICATIONS
  - RESEARCH CENTERS
  - CALENDAR

Financial Institution Supervision
- Financial Institution Supervision
- Supervision & Regulation
  - Circulars
  - Regulations
- Reporting Forms & Instructions
  - Reporting Forms
  - Correspondence
- Bank Applications
- Consumer Protection
  - Community Reinvestment Act Exams
  - Frauds and Scams
- As part of our core mission, we supervise and regulate financial institutions in the Second District. Our primary objective is to maintain a safe and competitive U.S. and global banking system.
  
  The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
  
  Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
  
  The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
Financial Services & Infrastructure
- Financial Services & Infrastructure
- Financial Services & Operations
- Financial Market Infrastructure & Reform
- The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
  
  The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
  
  The growing role of nonbank financial institutions, or NBFIs, in U.S. financial markets is a transformational trend with implications for monetary policy and financial stability.
  
  The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
Community Development
& Education

Staff Reports

Deficits, Public Debt Dynamics, and Tax and Spending Multipliers

February 2012 Number 551
Revised: September 2012

JEL classification: E52, E62

Authors: Matthew Denes, Gauti B. Eggertsson, and Sophia Gilbukh

Cutting government spending can increase the budget deficit at zero interest rates according to a standard New Keynesian model, calibrated with Bayesian methods. Similarly, increasing sales taxes can increase the budget deficit rather than reduce it. Both results suggest limitations of “austerity measures.” At zero interest rates, running budget deficits can be either expansionary or contractionary depending on how they interact with expectations about long-run taxes and spending. The effect of fiscal policy action is thus highly dependent on the policy regime. A successful stimulus, therefore, needs to specify how the budget is managed, not only in the short but also in the medium and long runs.

Available only in PDF pdf

38 pages / 378 kb

For a published version of this report, see Matthew Denes, Gauti B. Eggertsson, and Sophia Gilbukh, "Deficits, Public Debt Dynamics and Tax and Spending Multipliers," The Economic Journal 123, no. 566 (February 2013): F133-63.

Tools

E-mail Alerts

By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement.