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State-Dependent Effects of Fiscal Policy

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Author Info

  • Steven Fazzari

    (Washington University in St. Louis)

  • James Morley

    (School of Economics, University of New South Wales)

  • Irina Panovska

    ()
    (Washington University in St. Louis)

Abstract

We investigate the effects of government spending on U.S. economic activity using a threshold version of a structural vector autoregressive model. Our empirical findings support state-dependent effects of fiscal policy. In particular, the effects of a government spending shock on output are significantly larger and more persistent when the economy has a high degree of underutilized resources than when the economy is close to capacity. This evidence is consistent with an underlying structure of the economy in which insufficient aggregate demand often constrains the level of economic activity.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-27.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-27A.

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Length: 40 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:swe:wpaper:2012-27a

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Keywords: Government Spending; Threshold Model; Vector Autoregression; Nonlinear Dynamics.;

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References

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Citations

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Cited by:
  1. repec:spo:wpecon:info:hdl:2441/2g7mhju69b94obeaqlen09s1au is not listed on IDEAS
  2. Sylvain Leduc & Daniel J. Wilson, 2012. "Should transportation spending be included in a stimulus program? a review of the literature," Working Paper Series 2012-15, Federal Reserve Bank of San Francisco.
  3. Christophe Blot & Marion Cochard & Jérôme Creel & Bruno Ducoudre & Danielle Schweisguth & Xavier Timbeau, 2014. "Fiscal consolidation in times of crisis: is the sooner really the better?," Sciences Po publications info:hdl:2441/2g7mhju69b9, Sciences Po.
  4. Gustav A. Horn & Sebastian Gechert & Alexander Herzog-Stein & Katja Rietzler & Silke Tober & Sabine Stephan & Andrew Watt, 2013. "Inmitten der Krise des Euroraums - Herausforderungen für die Wirtschaftspolitik 2013," IMK Report 79-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  5. IMK Düsseldorf & OFCE Paris & WIFO Wien, 2013. "Die Krise schwelt weiter," IMK Report 80-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  6. Gustav A. Horn & Sebastian Gechert & Katja Rietzler & Kai D. Schmid, 2014. "Streitfall Fiskalpolitik," IMK Report 92-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  7. Christian R. Proaño & Christian Schoder & Willi Semmler, 2014. "Financial Stress, Sovereign Debt and Economic Activity in Industrialized Countries: Evidence from Dynamic Threshold Regressions," Department of Economics Working Papers wuwp167, Vienna University of Economics, Department of Economics.
  8. Steven M. Fazzari, 2012. "Does the Effectiveness of Fiscal Stimulus Depend on Economic Context?," INET Research Notes 1, Institute for New Economic Thinking (INET).
  9. Proaño, Christian R. & Schoder, Christian & Semmler, Willi, 2014. "Financial stress, sovereign debt and economic activity in industrialized countries: Evidence from dynamic threshold regressions," Journal of International Money and Finance, Elsevier, vol. 45(C), pages 17-37.
  10. Truger, Achim, 2013. "Austerity in the Euro area: The sad state of economic policy in Germany and the EU," IPE Working Papers 22/2013, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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