Wednesday, July 11, 2018
Federal Reserve Bank of San Francisco, Fiscal Policy in Good Times and Bad:
Recent U.S. federal fiscal policy has taken a decidedly procyclical turn, driven primarily by the large and front-loaded tax cuts enacted by the 2017 Tax Cuts and Jobs Act. Many analysts have forecast large increases in GDP growth over the next two to three years as a result. However, recent research finds that the effects of fiscal stimulus on overall economic activity are much smaller during expansions than during downturns. This suggests these forecasts may be overly optimistic.