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Fiscal multipliers in good times and bad times

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  • Peren Arin, K.
  • Koray, Faik
  • Spagnolo, Nicola

Abstract

This paper estimates the magnitudes of government spending and tax multipliers within a regime-switching framework for the U.S. economy during the period 1949:1–2006:4. Our results show that the magnitudes of spending multipliers are larger during periods of low economic activity, while the magnitudes of tax multipliers are larger during periods of high economic activity. We also show that the magnitudes of fiscal multipliers got smaller for episodes of low growth, while they got larger for episodes of high growth in the post 1980 period. Analyzing the effects of government spending and taxes on consumption and investment spending indicates that the magnitude of the effects of fiscal shocks on consumption and investment is very small.

Suggested Citation

  • Peren Arin, K. & Koray, Faik & Spagnolo, Nicola, 2015. "Fiscal multipliers in good times and bad times," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 303-311.
    • Handle: RePEc:eee:jmacro:v:44:y:2015:i:c:p:303-311
    DOI: 10.1016/j.jmacro.2015.01.002
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    More about this item

    Keywords

    Fiscal multipliers; Regime switching;

    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; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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