Models of government expenditure multipliers
AbstractIn this note, we demonstrate and analyze the inability of standard neoclassical models to generate accurate estimates of the fiscal multiplier (that is, the macroeconomic response to increased government spending). We then examine whether estimates can be improved by incorporating recently developed theory on demand-induced productivity increases into neoclassical models. We find that neoclassical models modified in this fashion produce considerably better estimates, but they remain unable to generate anything close to an accurate value of the fiscal multiplier.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Economic Policy Paper with number 12-2.
Date of creation: 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-DGE-2012-11-11 (Dynamic General Equilibrium)
- NEP-PBE-2012-11-11 (Public Economics)
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