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Fiscal Multipliers and the State of the Economy

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  • Anja Baum
  • Marcos Poplawski-Ribeiro
  • Anke Weber

Abstract

Only a few empirical studies have analyzed the relationship between fiscal multipliers and the underlying state of the economy. This paper investigates this link on a country-by-country basis for the G7 economies (excluding Italy). Our results show that fiscal multipliers differ across countries, calling for a tailored use of fiscal policy. Moreover, the position in the business cycle affects the impact of fiscal policy on output: on average, government spending, and revenue multipliers tend to be larger in downturns than in expansions. This asymmetry has implications for the choice between an upfront fiscal adjustment versus a more gradual approach.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/286.

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Length: 31
Date of creation: 05 Dec 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/286

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Related research

Keywords: Fiscal policy; Production growth; Business cycles; Group of seven; Cross country analysis; nonlinear analysis; fiscal multipliers.; fiscal adjustment; government spending; fiscal consolidation; fiscal shock; fiscal contraction; fiscal data; government expenditure; fiscal policies; fiscal spending; fiscal shocks; fiscal expansion; public debt; fiscal consolidations; fiscal stimulus; tax revenue; tax cuts; fiscal contractions; tax changes; tax policy; fiscal deficit; expansionary fiscal contractions; public expenditures; tax rates; fiscal policy decisions; taxation; discretionary fiscal policy; fiscal transparency; budget balance; impact of government expenditure; government revenue; budget balances; tax revenues; tax income; fiscal developments; tax multiplier; fiscal affairs; government spending multipliers; government spending shocks; fiscal expansions; fiscal rules; fiscal measures; size of multipliers; fiscal adjustment packages;

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References

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  1. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  2. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
  3. Giovanni Callegari & Giovanni Melina & Nicoletta Batini, 2012. "Successful Austerity in the United States, Europe and Japan," IMF Working Papers 12/190, International Monetary Fund.
  4. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
  5. Koop, Gary, 1996. "Parameter uncertainty and impulse response analysis," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 135-149.
  6. James Cloyne, 2011. "What are the Effects of Tax Changes in the United Kingdom? New Evidence from a Narrative Evaluation," CESifo Working Paper Series 3433, CESifo Group Munich.
  7. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  8. Dario Caldara & Christophe Kamps, 2012. "The analytics of SVARs: a unified framework to measure fiscal multipliers," Finance and Economics Discussion Series 2012-20, Board of Governors of the Federal Reserve System (U.S.).
  9. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
  10. António Afonso & Jaromír Baxa & Michal Slavík, 2011. "Fiscal developments and financial stress: a threshold VAR analysis," Working Papers IES 2011/16, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2011.
  11. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Fiscal Multipliers in Recession and Expansion," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 63-98 National Bureau of Economic Research, Inc.
  12. Nathan S. Balke, 2000. "Credit and Economic Activity: Credit Regimes and Nonlinear Propagation of Shocks," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 344-349, May.
  13. Roberto Perotti, 2011. "The Effects of Tax Shocks on Output: Not So Large, But Not Small Either," NBER Working Papers 16786, National Bureau of Economic Research, Inc.
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