The Macroeconomics of Fiscal Policy The Macroeconomics of Fiscal Policy

Conference Series 49 Conference Series 49

This Event Has Ended This Event Has Ended

June 14-16, 2004

This conference assessed our understanding of the effects and effectiveness of fiscal policy, drawing on postwar policy experience and recent economic research. Is fiscal policy an appropriate tool for short-run, macroeconomic stabilization? Has public policy helped to give rise to economic behaviors, such as “over-consumption,” that tend to produce persistent budget and trade deficits? What are the longer-run consequences of these deficits? And how should policymakers respond?

The collected papers presented at this conference were published in The Macroeconomics of Fiscal Policy (MIT Press, February 2006).

Introduction: The Macroeconomics of Fiscal Policy pdf

Order The Macroeconomics of Fiscal Policy from MIT Press

Biographies of Conference Participants

Conference Agenda

Monday, June 14

7:30 p.m. Dinner
Cathy E. Minehan
President and Chief Executive Officer
Federal Reserve Bank of Boston


Tuesday, June 15

7:15 a.m. Breakfast
8:00 a.m. Introductory Remarks
Cathy E. Minehan
8:15 a.m. Session One
Can Fiscal Policy Improve Macro Stabilization?
What can we learn from the literature and postwar historical experience: Are there fiscal policies that are effective and successful in the short run? How has the answer to this question changed over time? Why? What evidence supports the conclusion, either across time or countries? Does the answer depend on the particular fiscal instruments used?

Alan S. Blinder
Gordon S. Rentschler Memorial Professor of Economics
Princeton University


Olivier J. Blanchard
Class of 1941 Professor
Massachusetts Institute of Technology

Chris Sims
Professor of Economics
Princeton University

9:30 a.m.

Session Two
American Fiscal Policy in the Post-war Era:
An Interpretive History
How have key objectives of public policy -- public-good provision, income redistribution, social insurance, and macroeconomic stabilization -- influenced the way in which the public sector has evolved since the end of World War II? What does postwar history teach about how the public should interpret fiscal policy changes: Are tax reforms permanent or temporary? Are increases in the structural federal deficit balanced by future tax changes?

Presenter: Alan J. Auerbach
Robert D. Burch Professor of Tax Policy and Public Finance
University of California, Berkeley

James S. Duesenberry
Professor Emeritus
Harvard University

Douglas Elmendorf
Section Chief, Macroeconomic Analysis
Board of Governors of the Federal Reserve System

10:45 a.m. Break
11:00 a.m.

Session Three
Panel Discussion: Fiscal Policy in the Reagan Administration’s First Term
The Reagan Administration’s Economic Recovery Tax Act (ERTA) of 1981 dramatically cut tax rates at a time of economic weakness. Did the tax cuts help to stabilize the economy? What was the relationship between fiscal and monetary policy during this period? How did the tax cuts affect the supply side of the economy? What has been the long-run legacy of fiscal policy from this era?


C. Eugene Steuerle
Senior Fellow
The Urban Institute

W. Elliot Brownlee
Department of History
University of California, Santa Barbara

Van Doorn Ooms
Senior Fellow
The Committee for Economic Development

Rudolph G. Penner
Senior Fellow
The Urban Institute

12:30 p.m.


6:30 p.m.
(note time change from 7:00 p.m.)

Lawrence H. Summers
Harvard University

Reception and Dinner

Wednesday, June 16

7:15 a.m. Breakfast
8:30 a.m.

Session Four
Government Finance in the Short and Long Run
Are there limits to what deficit financing can accomplish in the near-term? What happens when deficits become “too large”? Does government financing significantly crowd out private financing at full employment with global financial markets? Does the structure of the tax system matter more than the size of the deficit in determining the economy’s growth rate? How should the financing burden of current spending be spread across generations, and does that depend on the nature of the spending?

Presenter: Benjamin M. Friedman
William Joseph Maier Professor of Political Economy
Harvard University

Susanto Basu
Visiting Scholar
Federal Reserve Bank of Boston

Barry P. Bosworth
Senior Fellow, Economic Studies
The Brookings Institution

9:45 a.m.

Session Five
Is the U.S. Prone to “Over-Consumption”?
The federal budget deficit and the trade deficit now both exceed 4 percent of GDP, and the personal saving rate is currently below 4 percent -- low by historic as well as by international standards. Is the current low rate of saving a problem? How has public policy affected the domestic rate of saving? Is policy serving the public will? If the low savings rate is a problem, what changes might stimulate increased saving?


Jean-Phillippe Cotis
Chief Economist
Organisation for Economic Co-operation and Development


Willem H. Buiter
Chief Economist and Special Counsellor to the President
European Bank for Reconstruction and Development

Eric Engen
Resident Scholar
American Enterprise Institute

11:00 a.m. Break
11:15 a.m.

Session Six
Panel Discussion: The Twin Deficits – U.S. and International Perspectives
Currently, and over much of the past two decades, the U.S. has simultaneously run a large federal budget deficit and experienced a substantial current account deficit. This session will discuss the degree to which the two deficits are related, their sustainability over medium and long horizons, and their impact on economic growth and living standards. What policy actions, if any, are currently desirable in light of this?


Edwin M. Truman
Senior Fellow
Institute for International Economics

Jeffrey A. Frankel
James W. Harpel Professor of Capital Formation and Growth
Kennedy School of Government

Catherine L. Mann
Senior Fellow
Institute for International Economics

Alice M. Rivlin
Senior Fellow, Economic Studies
The Brookings Institution