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State-Dependent Effects of Fiscal Policy

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  • Steven Fazzari

    (Washington University in St. Louis)

  • James Morley

    (School of Economics, University of New South Wales)

  • Irina Panovska

    ()
    (Rauch Business Center, Lehigh University)

Abstract

We investigate the effects of government spending on U.S. output with a threshold structural vector autoregressive model. We provide formal comparisons for nonlinearity in the responses of output to government spending and develop a method to compare the difference between impulse response functions across states of the economy. Our empirical findings support state-dependent effects of fiscal policy. The government spending multiplier is larger and more persistent when capacity utilization is low. The estimated multiplier is large (1.6) for more than half of the sample observations, even when the interest rate is not at the zero lower bound.

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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 2012-27B.

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Length: 44 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:swe:wpaper:2012-27b

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Keywords: Government Spending; Threshold Model; Vector Autoregression; Nonlinear Dynamics; Impulse-Response Comparison; Bayesian;

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References

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Citations

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Cited by:
  1. 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.
  2. 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.
  3. Steven M. Fazzari, 2012. "Does the Effectiveness of Fiscal Stimulus Depend on Economic Context?," INET Research Notes 1, Institute for New Economic Thinking (INET).
  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. 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.
  6. repec:spo:wpecon:info:hdl:2441/2g7mhju69b94obeaqlen09s1au is not listed on IDEAS
  7. 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).
  8. 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.
  9. IMK Düsseldorf & OFCE Paris & WIFO Wien, 2013. "Die Krise schwelt weiter," IMK Report 80-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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