Has There Been a Fiscal Shock in the United States Recently?

I used a figure like the one above in a talk that I gave at the Eastern Economic Association 39^th Annual Conference last month on the topic “Heterodox Shocks.” (The diagram above incorporates data released at the end of last month.) Total government spending in the US, shown in red, continues to fall as a percentage of GDP. Similarly, federal spending is trending downward following a 2009Q2 peak. The effects of the spending sequester, which technically went into effect on March 1, have probably not been fully felt yet in the Q1 data.

My talk was intended only to be a thought-provoking discussion of the concept of shocks in macroeconomics (including policy shocks) and does not contain, say, a complete new economic model. It began with two concrete examples from recent data, including the one above, which may be of some interest to readers who have followed the Institute’s work on the recent move to austerity in US fiscal policy, in this blog and elsewhere on our website. For those interested, a revised working paper version of the conference paper just went online and is available at this link. Finally, this Powerpoint file may be of interest to readers looking for an outline-style summary of the talk and paper, though it contains some additional visual examples and could be described mostly as a pitch for the paper.