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Heritage Hopes Obama Listens to Romer

Posted By Conn Carroll On November 26, 2008 @ 1:34 pm In Ongoing Priorities | Comments Disabled

The chances our good that The Heritage Foundation will not love everything that President-elect Barack Obama does. So let us all celebrate Obama’s strong choice of University of California at Berkeley Professor of Economics Christina Romer as Chairwoman of the Council of Economic Advisers [1]. We specifically hope that Mrs. Romer packs three specific papers she wrote when she departs for Washington:

  1. from the abstract for The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks [2]: “This paper investigates the impact of changes in the level of taxation on economic activity. … The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment. “
  2. from Starve the Beast or Explode the Deficit? The Effects of Tax Cuts on Government Spending [3]: “This analysis of the response of revenues and tax legislation to a tax cut yields two main findings. First, although a tax cut leads to a sharp fall in revenues in the short run, it does not have any clear impact on revenues at horizons beyond about two years. Second, roughly half of the tax cut is offset by legislated tax increases over the next several years. Taken together, these findings suggest that a substantial fraction of the rebound in revenues is the result of non-legislated changes. The key source of the non-legislated changes in revenues is almost certainly the effect of the tax cut on economic activity. In Romer and Romer (2007b), we find that a tax cut of one percent of GDP increases real output by approximately three percent over the next three years. Since revenues are a function of income, this growth undoubtedly raises revenues.”
  3. from the abstract for What Ends Recessions [4]?: “This paper analyzes the contributions of monetary and fiscal policy to postwar economic recoveries. We find that the Federal Reserve typically responds to downturns with prompt and large reductions in interest rates. Discretionary fiscal policy, in contrast, rarely reacts before the trough in economic activity, and even then the responses are usually small. “

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URL to article: http://blog.heritage.org/2008/11/26/heritage-hopes-obama-listens-to-romer/

URLs in this post:

[1] University of California at Berkeley Professor of Economics Christina Romer as Chairwoman of the Council of Economic Advisers: http://www.nytimes.com/2008/11/25/us/politics/25web-romer.html

[2] The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks: http://www.nber.org/papers/w13264

[3] Starve the Beast or Explode the Deficit? The Effects of Tax Cuts on Government Spending: http://www.econ.berkeley.edu/~cromer/draft507.pdf

[4] What Ends Recessions: http://www.nber.org/papers/w4765

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