11 September 2015

Two Papers Every Republican Candidate (And Everyone) Should Read

Here's a list of a few papers that all the Republican (this applies less to Democrats, at least at the moment) candidates for US president in 2016 should make themselves familiar with:

1. "How Far Are We From The Slippery Slope? The Laffer Curve Revisited" - Mathias Trabandt and Harald Uhlig:

I recently found this paper while browsing ideas for estimates of the US Laffer curve based off of a neoclassical growth model. This paper (download here) has a couple of key points for the Republican candidates. Namely 1. The US is currently on the left side of its Laffer curve and 2. Because of this, tax cuts will not be self-financing (take that Jeb!).

2. "Simple Analytics of the Government Expenditure Multiplier" - Michael Woodford:

This is actually one of the papers that has most influenced my understanding of fiscal policy. Woodford's model doesn't have all the bells and whistles of typical DSGE's, so the analysis is extremely clear and identifies the effects of fiscal policy given different monetary policy choices. Three main insights that I get from it are: 1. If the central bank pegs the real interest rate, the multiplier equals one 2. If the central bank pegs the inflation rate, the multiplier equals the flexible price multiplier 3. If money is neutral, the multiplier is greater than zero 4. At the zero lower bound, the multiplier can exceed one (download here).

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