First quarterly report of impact of Obama fiscal stilmulus

CEA has released the first quarterly report assessing the impact of Obama’s fiscal stimulus plan. The report was released on 10 Sep 2009 but did not get any coverage. It has interesting analysis of the Obama plan and has some tall claims. The key findings are:

• As of the end of August, $151.4 billion of the original $787 billion has been outlaid or has gone to American taxpayers and businesses in the form of tax reductions. An additional $128.2 billion has been obligated, which means that the money is available to recipients once they make expenditures. The areas where stimulus has been largest in the first six months are individual tax cuts, state fiscal relief, and aid to those most directly hurt by the recession. That recovery funds have gone out rapidly certainly increases the probability that the Act has been effective in its first six months.
• Following implementation of the ARRA, the trajectory of the economy changed materially toward moderating output decline and job loss. The decomposition of the GDP and employment change by components or sector suggests that the ARRA has played a key role in this change of trajectory.
• Estimates of the impact of the ARRA made by comparing actual economic performance to the predictions of a plausible, statistical baseline suggest that the Recovery Act added roughly 2.3 percentage points to real GDP growth in the second quarter and is likely to add even more to growth in the third quarter.
• This analysis indicates that the ARRA and other policy actions caused employment in August to be slightly more than 1 million jobs higher than it otherwise would have been. We estimate that the Act has had particularly strong effects in manufacturing, construction, retail trade, and temporary employment services. The employment effects are distributed across states, with larger effects in states more severely impacted by the recession.
• In addition to the estimates based on statistical projection, we provide estimates of the effects of the ARRA from standard economic models. Both our multiplier analysis and estimates from a wide range of private and public sector forecasters confirm the estimates from the statistical projection analysis. There is broad agreement that the ARRA has added between 2 and 3 percentage points to baseline real GDP growth in the second quarter of 2009 and around 3 percentage points in the third quarter. There is also broad agreement that it has likely added between 600,000 and 1.1 million to employment (again, relative to what would have happened without stimulus) as of the third quarter.
• Fiscal stimulus appears to be effective in mitigating the worldwide recession. Nearly every industrialized country and many emerging economies responded to the severe financial crisis and recession by enacting fiscal stimulus. However, countries differed greatly in the size of their fiscal actions. We find that countries that adopted larger fiscal stimulus packages have outperformed expectations relative to those adopting smaller packages.
• State fiscal relief was one of the ways in which the Recovery Act was able to provide support for the economy most quickly, and it played a critical role in helping states facing large budget shortfalls because of the recession. Our analysis indicates that state fiscal relief increased employment at the state level relative to what would have happened without stimulus. Thus, this analysis both provides evidence of how one particular type of fiscal stimulus impacts the economy and corroborates the more fundamental finding that fiscal stimulus in general is an effective countercyclical tool.

CEA estimates fiscal multiplier of 2.3 in Q2 2009 and 2.7 in Q3 2009. Table 7 has estimates from other agencies aas well. I am wondering what Robert Barro and Robert Lucas have to say on this.

The report also has 3 seperate chapters. Though, the main report covers these issues, still these are more detailed:

• The Effects of State Fiscal Relief
• The Effects of Fiscal Stimulus: a Cross-Country Perspective
• Economic Analysis of the Car Allowance Rebate System (“Cash for Clunkers”)

The second one points countries which passed higher fiscal stimuls are better placed. The analysis is crude and could be much improved (the report also acknowledges this).

The report is also a useful lesson in economics writing. It is written with amazing clarity and simplicity.