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Fiscal Spending Multiplier Calculations based on Input-Output Tables – with an Application to EU Members

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Author Info

  • Toralf Pusch
  • A. Rannberg

Abstract

Fiscal spending multiplier calculations have been revived in the aftermath of the global financial crisis. Much of the current literature is based on VAR estimation methods and DSGE models. The aim of this paper is not a further deepening of this literature but rather to implement a calculation method of multipliers which is suitable for open economies like EU member states. To this end, Input-Output tables are used as by this means the import intake of domestic demand components can be isolated in order to get an appropriate base for the calculation of the relevant import quotas. The difference of this method is substantial – on average the calculated multipliers are 15% higher than the conventional GDP fiscal spending multiplier for EU members. Multipliers for specific spending categories are comparably high, ranging between 1.4 and 1.8 for many members of the EU. GDP drops due to budget consolidation might therefore be substantial if monetary policy is not able to react in an expansionary manner.

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Bibliographic Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 1.

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Date of creation: Jan 2011
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Handle: RePEc:iwh:dispap:1-11

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Related research

Keywords: fiscal spending multiplier calculation; Input-Output calculus; income-expenditure model; European Union; stimulus; consolidation;

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  1. Miguel Almunia & Agustín S. Bénétrix & Barry Eichengreen & Kevin H. O'Rourke & Gisela Rua, 2009. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," The Institute for International Integration Studies Discussion Paper Series iiisdp303, IIIS.
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Cited by:
  1. Gechert, Sebastian, 2012. "The multiplier principle, credit-money and time," MPRA Paper 34648, University Library of Munich, Germany.

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