Can government spending activities have a positive impact on economic activity? Do federal spending programs designed to offset a recession’s negative effects add a boost to GDP growth? Can government purposefully and successfully take steps that will increase employment?
In essence, do government stimulus programs really work?
With various political parties advocating further economic boomerangs, find out here: The U.S. Experience With Fiscal Stimulus | Mercatus.
The key conclusions are on the last page. After describing three hurdles to stimulus spending as an effective policy tool, we find:
It may be that when a country is small, private investment is commensurately small, financial markets are less developed, and government can play a useful role in funding industries that require large start-up costs. This need would diminish as the country’s economy develops. The implication is that there may be a fourth hurdle: even if Keynesian theory were correct, and even if policy makers could get the timing right, and even if they had the political will to reverse stimulus spending at the ends of recessions, stimulus spending would become less and less potent over time as a country’s economy grew.