Thursday, October 1, 2009

Stimulus Spending Does Not Work -- Never Has

Robert J. Barro, an economics professor at Harvard University, writes an editorial today at The Wall Street Journal, where he comes to several conclusions about stimulus spending based on a working paper issued by the National Bureau of Economic Research in September.

He defines how stimulus plans are supposed to work. "Stimulus packages typically also feature tax reductions, designed partly to boost consumer demand (by raising disposable income) and partly to stimulate work effort, production and investment (by lowering rates)."

He gives a detailed look at the data for wartime spending, positing that wartime spending is least affected by economic fluctuations.

His result? "The results mostly favor tax rate reductions over increases in government spending as a means to increase GDP."

You can find the editorial here.

Here is a link to the paper he references. You will have to purchase it.

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