Brilliant breakdown of hypothetical bias in survey-based economics. The point about how people don't internalize future taxes in real life resonates—I've noticed in my own budgeting that windfalls feel like "free money" even when logicaly I know they're not. Your argument about calibrating models to single survey moments is compeling, especially when the underlying behavior might just be anchoring effects rather than genuine intemporal reasoning.
"The authors then embed this finding into a modern macroeconomic model and conclude that fiscal stimulus, both transfers and government spending, can have much larger effects on economic output than standard models predict. In some cases, they even find government spending multipliers above one, meaning an initial change in spending can lead to a larger overall change in economic output."
This is a description of models which do not include central bank policy (or implicitly assume a specific kind of policy). The "fiscal multiplier" will be zero for acentral bank that has an inflation target and adjusts aggregated demand to achieve that target.
What fiscal policy in recession CAN do in recession is, by directing demand to activities with positive NPV >0, increase the real income effect of the (nominal) aggregate demand that the central bank controlls.
Brilliant breakdown of hypothetical bias in survey-based economics. The point about how people don't internalize future taxes in real life resonates—I've noticed in my own budgeting that windfalls feel like "free money" even when logicaly I know they're not. Your argument about calibrating models to single survey moments is compeling, especially when the underlying behavior might just be anchoring effects rather than genuine intemporal reasoning.
Reminds me of this paper (I was one of the undergrad economics students who was surveyed): https://onlinelibrary.wiley.com/doi/10.1111/j.1467-8454.1991.tb00526.x
"The authors then embed this finding into a modern macroeconomic model and conclude that fiscal stimulus, both transfers and government spending, can have much larger effects on economic output than standard models predict. In some cases, they even find government spending multipliers above one, meaning an initial change in spending can lead to a larger overall change in economic output."
This is a description of models which do not include central bank policy (or implicitly assume a specific kind of policy). The "fiscal multiplier" will be zero for acentral bank that has an inflation target and adjusts aggregated demand to achieve that target.
What fiscal policy in recession CAN do in recession is, by directing demand to activities with positive NPV >0, increase the real income effect of the (nominal) aggregate demand that the central bank controlls.