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Options for Responding to Short-Term Economic Weakness
January 2008
The economy has recently been buffeted by several interlinked shocks, and the risk of recession is significantly elevated compared with what it is during normal economic conditions.
In response to a request from the Chairmen of the House and Senate Budget Committees, the Congressional Budget Office (CBO) has examined the potential role of fiscal policy efforts to expand aggregate demand in the current economic situation and the efficacy of various policy options to do so. This paper also examines options for dealing with the crisis in the home mortgage market, which has contributed to the overall economic weakness. The paper updates and expands upon a January 2002 CBO analysis of various tax options for stimulating the economy (see Economic Stimulus: Evaluating Proposed Changes in Tax Policy).
The paper was written by Robert Dennis, Douglas Hamilton, Kim Kowalewski, John Peterson, and Thomas Woodward. Christi Hawley Anthony, Kim Cawley, Molly Dahl, Kathleen FitzGerald, Theresa Gullo, Jonathan Huntley, Mark Lasky, Leo Lex, Angelo Mascaro, Susanne Mehlman, Lyle Nelson, Ben Page, Marvin Phaup, Frank Sammartino, Ralph Smith, David Torregrosa, Adam Weber, and Steve Weinberg gave considerable assistance and commented on early drafts.
Sherry Snyder edited the paper, and John Skeen proofread it. Maureen Costantino prepared the paper for publication. Lenny Skutnik printed the initial copies, and Simone Thomas produced the electronic version for CBO’s Web site.
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