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Fiscal multipliers in advanced and developing countries: Evidence from military spending

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  • Sheremirov, Viacheslav
  • Spirovska, Sandra

Abstract

This paper provides new evidence on the effects of government spending on output from a large panel of advanced and developing countries. We identify government spending shocks using variation in international military spending. We estimate a one-year fiscal multiplier, pooled across all countries in the sample, in the vicinity of 0.8. The pooled cumulative multiplier reaches its peak at 0.86 two years after the shock. We find substantial heterogeneity across economic environments as well as across countries: The multipliers are relatively large (above one) in advanced economies, in recessions, for negative shocks, under a fixed exchange rate, and in closed economies. We also analyze scenarios in which the identifying restrictions may not hold, highlighting the possible limitations of the military-spending approach and providing a wider range of possible effects.

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  • Sheremirov, Viacheslav & Spirovska, Sandra, 2022. "Fiscal multipliers in advanced and developing countries: Evidence from military spending," Journal of Public Economics, Elsevier, vol. 208(C).
  • Handle: RePEc:eee:pubeco:v:208:y:2022:i:c:s0047272722000330
    DOI: 10.1016/j.jpubeco.2022.104631
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    More about this item

    Keywords

    Fiscal policy; Military spending; Multiplier;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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