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Discussion by Antonio Spilimbergo (IMF, CEPR, CreAm, and WDI)

What does the empirical evidence suggest about the effectiveness of discretionary fiscal actions? by Roberto Perotti. Discussion by Antonio Spilimbergo (IMF, CEPR, CreAm, and WDI). Plan. Why is the question important? What is at stake? What can we learn for the current crisis?

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Discussion by Antonio Spilimbergo (IMF, CEPR, CreAm, and WDI)

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  1. What does the empirical evidence suggest about the effectiveness of discretionary fiscal actions?by Roberto Perotti Discussion by Antonio Spilimbergo (IMF, CEPR, CreAm, and WDI)

  2. Plan • Why is the question important? What is at stake? • What can we learn for the current crisis? • What can we learn from the current crisis?

  3. Why it is important? • Less disagreement on Y and employment • Why so much disagreement on C and w? • This debate is `proxy’ war for a deeper “ideological” disagreement on: • the role of the state • nominal rigidities

  4. But proxy wars are important

  5. Three agents • Evil government • Forward looking consumer • Smart econometrician

  6. Economic Fluctuations Military Buildups Government Consumption Labor Supply Wealth Private Consumption

  7. Wealth Channel • It works only if consumers know it • It is not like a virus • Paradox • consumers know it but econometrician does not • For consumers to believe that wealth goes down, two conditions are necessary: • Ricardian equivalence (studied) • Believe that government expenditure is always wasteful (not studied yet)

  8. What are the implications of this debate for the current crisis?

  9. Does it matter which side is correct for the current crisis? • Probably not so much • Dramatic decrease in wealth anyway • Large part of government intervention is to cover financial losses that already occurred … • … so net private debt does not change as a consequence of government intervention

  10. What can we learn from the current crisis?

  11. Probably little • Identification extremely difficult • Change in structural parameters

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