What are the effects of fiscal policy at the zero lower bound?

R. Anton Braun, Lena Boneva & Yuichiro Waki.

Does fiscal policy have large and qualitatively different effects when the nominal interest rate is zero? An emerging consensus in the New Keynesian literature is that supply-side fiscal stimulus is ineffective at the zero lower bound (ZLB) while demand-side fiscal stimulus is a useful tool to escape a liquidity trap. But new evidence provided in our paper  suggests that supply-side fiscal policies can play an important role at the ZLB while the effects of demand-side stimulus may be weaker than previously found.

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