“Reassessing Discretionary Fiscal Policy”

In paper he wrote in 2000, John Taylor of Stanford University wrote about why discretionary fiscal policy is a bad macroeconomic tool. He argues that the overall size of the changes in taxes and spending due to automatic stabilizers are usually larger the discretionary fiscal policy proposals. He also argues that automatic stabilizers are more predictable and work more quickly that discretionary fiscal policy.

I could analyze both discretionary fiscal policy and automatic stabilizers separately, but my main focus is on total credit marked debt owed, which includes both automatic stabilizers and discretionary fiscal policy. Unfortunately, this paper does not include econometric analysis and only relies on theoretical arguments. I did find another paper though that analyzed both automatic stabilizers and discretionary spending and their effects on industry growth using econometric analysis. Their models give me some good ideas on how to develop the right functional form for my model

Taylor, John B. 2000. “Reassessing Discretionary Fiscal Policy,” Journal of Economic Perspectives. 14:3 pp. 21-36