Estimated Multipliers, government spending vs. personal tax cuts

A few days ago I promised to report on estimates of fiscal multipliers, and I have found some papers. But it looks like macroeconomist bloggers are beating me to the punch.

Menzie Chinn has a nice comparison of the timing and size of spending vs. tax based economic stimulus.
The bottom line is that the spending multiplier is about the same size as a tax multiplier, but a spending multiplier works much quicker.

Chinn also discusses appropriate timing and required length of a stimulus program using statistics from previous recessions.

I have been looking for statistical estimates for a future post, but these estimates reported in Econbrowser are model-based and are from a 2001 Organization of Economic Cooperation and Development Report.

So, they are just from some model, so maybe not worth much? Perhaps, but the Romer and Romer paper (that was so much discussed by conservative pundits to say tax cuts were definitely bigger and quicker) had estimates of similar magnitude, though the effect arrives somewhat quicker. So the magnitude of this model-based estimate is about the same as from statistical estimates using historical data.

I think the personal tax multiplier shown here is an over estimate, because households are desperate to reduce their debt burden, and the savings rate is rising rapidly (though not reducing the burden much, as Krugman explain in his blog today). So most of any tax stimulus that is not targeted at low incomes will probably be saved, just as the previouis personal tax-cut stimulus was.

The Republican position on the stimulus is incoherent and self-contradictory. They say that to be effective and quick, we need a tax cut stimulus, which will work better than an spending stimulus. But the last stimulus was exactly what they are proposing now, and did not work. The situation now is similar to what it was then Why does anyone listen to them?

Budget Surplus? Tax Cut! Budget Deficit? Tax Cut! High Energy Prices? Tax Cut! Deep Recession? More Tax Cuts!
February 02, 2009
By Menzie Chinn

The Romer and Romer paper is here:

The macroeconomic effects of tax changes: Estimates based on a new measure of fiscal shocks
Christina D. Romer, David H. Romer