Should the fiscal authority avoid implementation lag?

Abstract

Implementation lags are one of policymakers’ concerns about fiscal policies, as these may reduce their efficacy. Using a standard New Keynesian model with an effective lower bound on the nominal interest rate, we compare the impacts of fiscal stimulus on output across various lengths of implementation lag. We show that despite concerns among policymakers, a fiscal authority can enhance the efficacy of government purchases on output with implementation lags when the economy is caught in a liquidity trap