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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.

Suggested Citation

  • 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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    1. Danzer, Alexander M. & Danzer, Natalia & Feuerbaum, Carsten, 2023. "Military Spending and Innovation: Learning from 19th Century World Fair Exhibition Data," IZA Discussion Papers 16034, Institute of Labor Economics (IZA).
    2. Olejnik, Łukasz Wiktor, 2023. "Short-run multiplier effects of military expenditures in NATO's Eastern Flank countries in 1999–2021," Journal of Comparative Economics, Elsevier, vol. 51(4), pages 1344-1355.
    3. Stojanovikj, Martin, 2022. "Government size, inflation targeting and business cycle volatility," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 1-12.
    4. Lukasz Wiktor Olejnik, 2023. "Economic growth and military expenditure in the countries on NATOʼs Eastern flank in 1999–2021," Bank of Estonia Working Papers wp2023-2, Bank of Estonia, revised 09 May 2023.
    5. Han, Haozhe & Zhang, Shuo, 2023. "How does people’s liberation army related business closure affect the local economy?," China Economic Review, Elsevier, vol. 77(C).
    6. Hyungsuk Lee & Junsang Lee, 2024. "Accounting for the Effects of Fiscal Policy Shocks on Exchange Rates through Markup Dynamics," Review, Federal Reserve Bank of St. Louis, vol. 106(2), pages 129-145, April.
    7. Rabia Rafique & Asad Nisar & Syed Sadaqat Ali Shah, 2024. "Testing the effects of fiscal policy shocks on output growth in recession and expansion: empirical evidence from developing countries," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-26, June.
    8. Syed Sadaqat Ali Shah & Muhammad Asim Afridi, 2023. "Cyclical variation of fiscal multipliers in Caucasus and Central Asia economies: an empirical evidence," Economic Change and Restructuring, Springer, vol. 56(6), pages 4531-4563, December.

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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; Modern Monetary Theory
    • 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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