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Persistent government spending and fiscal multipliers: The investment-channel

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  • Dupaigne, Martial
  • Fève, Patrick

Abstract

This paper inspects the mechanism shaping government spending multipliers in various small-scale DSGE setups with endogenous labor supply and capital accumulation. We analytically characterize the short-run investment multiplier, which in equilibrium can be either positive or negative. The investment multiplier increases with the persistence of the exogenous government spending process. The response of investment to government spending shocks strongly affects short-run multipliers on output and consumption.

Suggested Citation

  • Dupaigne, Martial & Fève, Patrick, 2016. "Persistent government spending and fiscal multipliers: The investment-channel," European Economic Review, Elsevier, vol. 89(C), pages 425-453.
  • Handle: RePEc:eee:eecrev:v:89:y:2016:i:c:p:425-453
    DOI: 10.1016/j.euroecorev.2016.09.004
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    Citations

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    Cited by:

    1. Patrick Fève & Jean‐Guillaume Sahuc, 2017. "In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(3), pages 704-718, April.
    2. Pedro Brinca & Miguel H. Ferreira & Francesco Franco & Hans A. Holter & Laurence Malafry, 2017. "Fiscal Consolidation Programs and Income Inequality," CEF.UP Working Papers 1703, Universidade do Porto, Faculdade de Economia do Porto.
    3. Jordan Roulleau-Pasdeloup, 2016. "The Government Spending Multiplier in a (Mis-)Managed Liquidity Trap," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 16.03, Université de Lausanne, Faculté des HEC, DEEP.
    4. Pedro Brinca & Miguel H. Ferreira & Francesco Franco & Hans A. Holter & Laurence Malafry, 2017. "Fiscal Consolidation Programs and Income Inequality," CeBER Working Papers 2017-11, Centre for Business and Economics Research (CeBER), University of Coimbra.
    5. Fève, Patrick & Kass-Hanna, Tannous & Pietrunti, Mario, 2016. "An analytical characterization of noisy fiscal policy," Economics Letters, Elsevier, vol. 148(C), pages 76-79.
    6. Pfammatter, Andrea Corina, 2015. "Do differences in international labor mobility lead to differences in the fiscal multiplier? A theoretical approach," MPRA Paper 68955, University Library of Munich, Germany.

    More about this item

    Keywords

    Government Spending Multipliers; DSGE models; Capital Accumulation; Labor Supply; Market Imperfections;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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