Friday, 30 January 2009

Bang for the buck on public spending

There is a large debate amongst economists at the moment about the need for and effectiveness of a fiscal stimulus package (see Jonathan's post about Barro vs Krugman).
This article by Paul Krugman about dynamic scoring and the "bang for the buck" on public spending in the US basically asks: how should we measure the cost of effective fiscal stimulus?

1 comment:

  1. What is the source formula for this part? I can't remember my macro off the top of my head.

    "Then textbook analysis says that if the stimulus is dG, the increase in GDP is 1/(1 - c(1-t)) where c is the marginal propensity to consume out of income and t is the marginal tax rate."