Fiscal Stimulus and Distortionary Taxation. Centre for European Economic Research Discussion Paper No


lig: CentER, NBER and CEPR. We are grateful to the useful feedback from a number of seminar and conference audiences. We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark Smets-Wouters (Smets and Wouters, 2007) New Keyne-sian model, allowing for credit-constrained households, the zero lower bound, government capital and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.52 and mod-estly negative long-run multipliers around-0.42. The multiplier is sensitive to the fraction of transfers given to credit-constrained house-holds, the duration of the zero lower bound and the capital. The stimulus results in negative welfare effects for unconstrained agents. The constrained agents gain, if they discount the future substantially

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