Stimulus fail: multiplying or subtracting?

• Author: Suderman, Peter
• Position: Citings - Brief article

WHEN University of California at San Diego economist Valerie Ramey reviewed the literature on stimulus spending for the Journal of Economic Literature in 2011, she found considerable disagreement among economists. She reported that temporary, deficit-financed government purchases result in multipliers somewhere between 0.8 and 1.5, meaning that every stimulus dollar spent results in a return of between 80 cents and $1.50. She added that "reasonable people can argue" the data indicate multipliers as high as 2 or as low as 0.5.

In a January paper for the National Bureau of Economic Research, Ramey presented evidence that the true impact is likely to be at the lower end of the range. "An increase in government spending never leads to a...