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How Big (Small?) are Fiscal Multipliers?

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  • Ethan Ilzetzki
  • Enrique G. Mendoza
  • Carlos A. Végh

Abstract

We contribute to the debate on the macroeconomic effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rates but is zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are smaller than in closed economies; (iv) fiscal multipliers in high-debt countries are negative.

Suggested Citation

  • Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh, 2010. "How Big (Small?) are Fiscal Multipliers?," NBER Working Papers 16479, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16479
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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