Fox News Watchdog

A Wall Street Journal editorial claimed that “current White House chief economist Christina Romer has done economic research showing the superiority of tax cutting over spending as fiscal stimulus,” presumably referring to a March 2007 paper by Christina and David Romer, who found that “tax changes have very large effects on output.” However, contrary to the Journal‘s claim, the Romers’ paper did not compare the impact of tax changes on output to the impact of spending.

WSJ claimed Romer’s
research showed “the superiority of tax cutting over spending as fiscal
stimulus.”

From a January 27 Wall Street Journal editorial:

You don’t have to be a supply-sider
to wonder about the wisdom of raising taxes amid a fragile economy, and once
upon a time even Keynesians favored tax cuts as economic stimulus. Walter Heller
helped to write JFK’s tax cuts, and current White House chief economist
Christina Romer has done economic research showing the superiority of tax
cutting over spending as fiscal stimulus. That was before she sat in the White
House mess.

In fact, Romer
research did not compare tax cuts and spending as fiscal
stimulus

Mankiw: The
Romers’ research “does not address the effects of increases in government
spending.” Economist and former Bush adviser
Gregory Mankiw, who cited the Romers’ 2007 paper in a January 10, 2009, New York Times column,
noted in a subsequent blog
post that “[t]he Romer
research is about the effects of tax cuts. It does not address the effects
of increases in government spending.”

DeLong: Romers’
study does not show “that tax cuts are uniquely effective.”
Responding to Mankiw’s Times column, economist Brad DeLong wrote
on January 12, 2009,
that “[t]he error is the association of Christina Romer with the proposition
that the tax multiplier
– the
effect on GDP of a tax cut
– is
twice the spending multiplier. The Romers’ article does not distinguish between
the two, referring only to the ‘substantial multiplier… due to the
procyclical behavior of investment.’ ” DeLong further wrote, “What Romer and
Romer’s study (and their earlier work on monetary policy) shows is not that tax
cuts are uniquely effective, but rather that failing to consider the reasons for
policy changes leads to underestimates of the effects of all types of
stimulus.”

Justin Fox:
Romers’ paper made “no attempt to compare the impact of government spending with
tax cuts.” Financial writer Justin Fox wrote
on January 14, 2009, that “the Romers identified a bigger-than-generally-assumed
economic impact from tax changes, but didn’t have much to say about precisely
the kind of tax change being contemplated now [for stimulus during recession], and didn’t have anything
at all to say about the relative efficacy of tax changes vs. spending changes.”
Fox further noted that the paper “focused on exogenous tax changes” — that is, “any tax change
not motivated by a desiret to return output growth to normal” — and wrote that the Romers
made “no attempt to compare the impact of government spending with tax cuts.”

More recent
analysis by Romer assumed lower multiplier for tax cuts in a stimulus plan.
Christina Romer and Jared
Bernstein, chief economist to
Vice President Biden, wrote in a January 9, 2009, estimate
of the job impact of a “prototypical” recovery plan, that based on “multipliers
for increases in government spending and tax cuts from a leading private
forecasting firm and the Federal Reserve’s FRB/US model,” their analysis assumed
that government spending has a larger impact on output than tax cuts.

Romer research
previously distorted by House GOP, Karl Rove

GOP, Rove claimed
Romer model showed Republican stimulus plan produced more jobs for lower cost.
On the March 1, 2009, edition of
This
Week, Karl Rove, who contributes to The
Wall Street Journal, echoed House
Republicans’ distortion of research
by Christina Romer in
claiming that their alternative stimulus bill “produced 50 percent more jobs at
half the cost” of President Obama’s economic recovery plan. In fact, according
to the White House, “Romer’s view is that the House analysis is absolutely
incorrect” and “the plan the President supports would result in substantially
greater job creation than the House Republican
plan.”

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