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State-Dependent Effects of Fiscal Policy

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  • Steven M. Fazzari
  • James Morley
  • Irina Panovska

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 out- put 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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Bibliographic Info

Paper provided by Institute for New Economic Thinking (INET) in its series INET Research Notes with number 3.

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Date of creation: 15 May 2012
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Handle: RePEc:thk:rnotes:3

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

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Citations

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Cited by:
  1. 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, Elsevier, vol. 45(C), pages 17-37.
  2. Sylvain Leduc & Daniel J. Wilson, 2012. "Should transportation spending be included in a stimulus program? a review of the literature," Working Paper Series, Federal Reserve Bank of San Francisco 2012-15, Federal Reserve Bank of San Francisco.
  3. Steven M. Fazzari, 2012. "Does the Effectiveness of Fiscal Stimulus Depend on Economic Context?," INET Research Notes, Institute for New Economic Thinking (INET) 1, Institute for New Economic Thinking (INET).
  4. Truger, Achim, 2013. "Austerity in the Euro area: The sad state of economic policy in Germany and the EU," IPE Working Papers, Berlin School of Economics and Law, Institute for International Political Economy (IPE) 22/2013, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  5. 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.
  6. IMK Düsseldorf & OFCE Paris & WIFO Wien, 2013. "Die Krise schwelt weiter," IMK Report, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 80-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  7. 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.
  8. repec:spo:wpecon:info:hdl:2441/2g7mhju69b94obeaqlen09s1au is not listed on IDEAS
  9. 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, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 79-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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