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How Big (Small?) are Fiscal Multipliers?

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  • Ethan Ilzetzki
  • Enrique G. Mendoza
  • Carlos A. Végh

Abstract

We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1016.

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Date of creation: Oct 2010
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Handle: RePEc:cep:cepdps:dp1016

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: government expenditure; macroeconomic policy;

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Zbunjuju?e o multiplikatoru i Hrvatskoj
    by cronomy in Cronomy on 2013-01-17 07:13:39
  2. Guest Contribution: "Monetary Alchemy, Fiscal Science"
    by Menzie Chinn in Econbrowser on 2013-01-26 09:00:31
  3. Monetary Alchemy, Fiscal Science
    by jfrankel in Jeff Frankels Weblog on 2013-01-26 17:16:19
  4. Osborne takes default risk
    by chris dillow in Stumbling and Mumbling on 2010-11-23 11:04:22
  5. Monetary or fiscal stimulus can help only if unemployment is cyclical; otherwise, if unemployment is structural expansionary policies will lead only to inflation. Careful recent analyses indicate that unemployment is mainly cyclical in the US
    by Blog Admin in British Politics and Policy at LSE on 2012-10-24 16:00:33
  6. Given the enormity of the short- and long-run fiscal challenges facing the US, the lack of policy detail from both presidential candidates is disappointing
    by Blog Admin in British Politics and Policy at LSE on 2012-10-25 13:00:36
  7. Fiscal Multipliers – How big or small?
    by Amol Agrawal in Mostly Economics on 2010-11-03 10:32:17
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