Budget-constrained expenditure multipliers
AbstractStandard expenditure multipliers capture economy-wide effects of new government projects only when financing constraints are not binding. In actual policy-making, however, new projects usually need financing. We show that under liquidity constraints, new projects are subject to two opposite effects: an income effect and a set of spending substitution effects. The former is the traditional, unrestricted, multiplier effect; the latter is the result of expenditure reallocation to uphold effective financing constraints. Unrestricted multipliers will therefore be, as a general rule, upward biased and policy designs based upon them should be reassessed in the light of the countervailing substitution effects. We also propose a novel decomposition of multiplier effects based on internal and external dependencies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics Letters.
Volume (Year): 18 (2011)
Issue (Month): 13 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAEL20
Other versions of this item:
- Ana-Isabel Guerra & Ferran Sancho, 2010. "Budget Constrained Expenditure Multipliers," UFAE and IAE Working Papers 804.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Ana-Isabel Guerra & Ferran Sancho, 2010. "Budget Constrained Expenditure Multipliers," Working Papers 427, Barcelona Graduate School of Economics.
- H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
- C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Manuel Alejandro Cardenete & Ferran Sancho, 2012.
"The Role Of Supply Constraints In Multiplier Analysis,"
Economic Systems Research,
Taylor & Francis Journals, vol. 24(1), pages 21-34, June.
- M. Alejandro Cardenete & Ferran Sancho, 2010. "The Role of Supply Constraints in Multiplier Analysis," UFAE and IAE Working Papers 805.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- M. Alejandro Cardenete and Ferran Sancho, 2010. "The Role of Supply Constraints in Multiplier Analysis," Working Papers 432, Barcelona Graduate School of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.