Chuck Grassley: “many folks on the other side of the aisle claim that spending is better stimulus than tax relief for working men and…”

“many folks on the other side of the aisle claim that spending is better stimulus than tax relief for working men and women. This is certainly not a unanimous opinion among economists, so I would share some recent economic research that analyzes data--not building models--to answer the question of whether spending or tax relief is more effective for economic stimulus. Christina Romer, who is the Obama administration's Chair of the Council of Economic Advisers, and David Romer, from the University of California at Berkeley, find that $1 of tax relief raises the gross domestic product by about $3. Robert Hall, from Stanford, and Susan Woodward, who is chair of Sand Hill Econometrics, find that $1 of Government spending raises gross domestic product by about $1. Andrew Mountford, from the University of London, and Harold Uhlig, from the University of Chicago, conclude that deficit-financed tax relief works better than either deficit-financed or balanced-budget Government spending increases to improve the gross domestic product. These experts calculate that each $1 of tax relief amounts to $5 of additional gross domestic product 5 years after the shock of recession. Olivier Blanchard, who is the chief economist at the IMF, and Roberto Perotti, from IGIER University, assert that a combination of both tax increases and Government spending increases has a strong negative impact on private investment spending.”