Fiscal stimulus in liquidity traps: Conventional or unconventional policies?

Recent influential work argue that a gradual increase in the sales tax stimulates economic activity liquidity trap by boosting inflation expectations. Higher public infrastructure investment should also be more expansive than normal times raising potential interest rate and increasing aggregate demand. We analyze relative merits of these policies New Keynesian models with without endogenous private capital formation heterogeneity when monetary policy does not respond rates. Our key finding is effectiveness hikes differs notably across various model specifications, whereas benefits higher are robust alternative environments. therefore conclude fiscal policymakers traps consider spending opportunities merely rely on to stimulate growth.