Advanced Search
MyIDEAS: Login to save this paper or follow this series

What Drives Fiscal Multipliers? The Role of Private Wealth and Debt

Contents:

Author Info

  • Sebastian Gechert
  • Rafael Mentges

Abstract

We show that fiscal multiplier estimations may be biased by movements in asset and credit markets, as they facilitate spurious correlations of changes in cyclically adjusted revenues and spending with GDP growth via wrong identifications and an omitted variable bias, thus overstating episodes of expansionary consolidations and downplaying contractionary consolidations. When controlling for asset and credit market movements in otherwise standard approaches to identification, we find multipliers to increase on average by 0.3 to 0.6 units. Consolidations are thus more likely to be contractionary and more harmful to growth than expected by some strands of the existing literature.

Download Info

If 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.
File URL: http://www.boeckler.de/pdf/imk_wp_124_2013
Download Restriction: no

Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 124-2013.

as in new window
Length: 38 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:imk:wpaper:124-2013

Contact details of provider:
Postal: Hans-Böckler-Straße 39, 40476 Düsseldorf
Phone: +49 211 7778 234
Fax: +49 211 7778 4234
Email:
Web page: http://www.imk-boeckler.de
More information through EDIRC

Related research

Keywords: multiplier effects; fiscal policy; asset markets; credit markets;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Tommaso Ferraresi & Andrea Roventini & Giorgio Fagiolo, 2013. "Fiscal Policies and Credit Regimes: A TVAR Approach," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2013/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2005. "Trade Spillovers of Fiscal Policy in the European Union: A Panel Analysis," EUI-RSCAS Working Papers, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) 31, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  3. Alan J. Auerbach & Yuriy Gorodnichenko, 2010. "Measuring the Output Responses to Fiscal Policy," NBER Working Papers 16311, National Bureau of Economic Research, Inc.
  4. Favero, Carlo A & Giavazzi, Francesco, 2007. "Debt and the Effects of Fiscal Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6092, C.E.P.R. Discussion Papers.
  5. Gilles Mourre & George-Marian Isbasoiu & Dario Paternoster & Matteo Salto, 2013. "The cyclically-adjusted budget balance used in the EU fiscal framework: an update," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 478, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Lindner, Fabian, 2014. "The housing wealth effect on consumption reconsidered," Economics Discussion Papers, Kiel Institute for the World Economy 2014-15, Kiel Institute for the World Economy.
  7. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series, European Central Bank 0877, European Central Bank.
  8. Phillips, P C B & Durlauf, S N, 1986. "Multiple Time Series Regression with Integrated Processes," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(4), pages 473-95, August.
  9. Michael Woodford, 2011. "Simple Analytics of the Government Expenditure Multiplier," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 3(1), pages 1-35, January.
  10. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, American Finance Association, vol. 32(2), pages 261-75, May.
  11. Giovanni Callegari & Giovanni Melina & Nicoletta Batini, 2012. "Successful Austerity in the United States, Europe and Japan," IMF Working Papers, International Monetary Fund 12/190, International Monetary Fund.
  12. Florin O. Bilbiie & André Meier & Gernot J. Müller, 2008. "What Accounts for the Changes in U.S. Fiscal Policy Transmission?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(7), pages 1439-1470, October.
  13. Sebastian Gechert, 2013. "What fiscal policy is most effective? A Meta Regression Analysis," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 117-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  14. West, Kenneth D, 1988. "Asymptotic Normality, When Regressors Have a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1397-1417, November.
  15. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, Econometric Society, vol. 58(1), pages 113-44, January.
  16. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1469-1513.
  17. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(4), pages 1329-1368, November.
  18. Daniel Leigh & Andrea Pescatori & Jaime Guajardo, 2011. "Expansionary Austerity New International Evidence," IMF Working Papers, International Monetary Fund 11/158, International Monetary Fund.
  19. Hess Chung & Eric M. Leeper, 2007. "What Has Financed Government Debt?," NBER Working Papers 13425, National Bureau of Economic Research, Inc.
  20. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(2), pages 99-118, Spring.
  21. Eric M. Leeper & Nora Traum & Todd B. Walker, 2011. "Clearing Up the Fiscal Multiplier Morass," NBER Working Papers 17444, National Bureau of Economic Research, Inc.
  22. Gabriele Giudice & Alessandro Turrini & Jan in’t Veld, 2007. "Non-Keynesian Fiscal Adjustments? A Close Look at Expansionary Fiscal Consolidations in the EU," Open Economies Review, Springer, Springer, vol. 18(5), pages 613-630, November.
  23. Roberto Perotti, 2011. "The "Austerity Myth": Gain Without Pain?," NBER Working Papers 17571, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Qazizada, W & Stockhammer, Engelbert, 2014. "Government spending multipliers in contraction and expansion," Economics Discussion Papers, School of Economics, Kingston University London 2014-2, School of Economics, Kingston University London.
  2. Gustav A. Horn & Alexander Herzog-Stein & Ansgar Rannenberg & Katja Rietzler & Silke Tober & Rudolf Zwiener, 2014. "Wirtschaftspolitische Herausforderungen 2014," IMK Report, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 90-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Gustav A. Horn & Sebastian Gechert & Katja Rietzler & Kai D. Schmid, 2014. "Streitfall Fiskalpolitik," IMK Report, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 92-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imk:wpaper:124-2013. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Nemitz).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.