Working Paper: NBER ID: w17445
Authors: Casey B. Mulligan
Abstract: The aggregate neoclassical growth model - with means-tested subsidies whose replacement rates began rising at the end of 2007 as its only impulse - produces time series for aggregate labor usage, consumption, investment, and real GDP that closely resemble actual U.S. time series. Despite having no explicit financial market, the model has investment fall steeply during the recession not because of any distortions with the supply of capital, but merely because labor is falling and labor is complementary with capital in the production function. Through the lens of the model, the fact that real consumption fell significantly below trend during 2008 suggests that labor usage per capita is expected to remain well below pre-recession levels for several years.
Keywords: mean-tested subsidies; economic performance; labor usage; investment; financial crisis
JEL Codes: E24; E32; H31; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mean-tested subsidies (H23) | labor usage (J29) |
| mean-tested subsidies (H23) | consumption (E21) |
| mean-tested subsidies (H23) | investment (G31) |
| labor usage (J29) | investment (G31) |
| mean-tested subsidies (H23) | labor supply (J20) |
| mean-tested subsidies (H23) | economic performance (P17) |