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Fiscal spending multiplier calculations based on input-output tables – an application to EU member states


  • Toralf Pusch

    () (Institut für Wirtschaftsforschung Halle)


Fiscal spending multiplier calculations have attracted considerable attention in the aftermath of the global financial crisis. Much of the current literature is based on VAR estimation methods and DSGE models. In line with the Keynesian literature we argue that many of these models probably underestimate the fiscal spending multiplier in recessions. The income-expenditure model of the fiscal spending multiplier can be seen as a good approximation under these circumstances. In its conventional form this model suffers from an underestimation of the multiplier due to an overestimation of the import intake of domestic absorption. In this article we apply input-output calculus to solve this problem. Multipliers thus derived are comparably high, ranging between 1.4 and 1.8 for many member states of the European Union. GDP drops due to budget consolidation might therefore be substantial in times of crisis.

Suggested Citation

  • Toralf Pusch, 2012. "Fiscal spending multiplier calculations based on input-output tables – an application to EU member states," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 9(1), pages 129-144.
  • Handle: RePEc:elg:ejeepi:v:9:y:2012:i:1:p129-144

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    References listed on IDEAS

    1. Professor H. B. Greven, 1887. "The Monetary System of Holland," The Quarterly Journal of Economics, Oxford University Press, vol. 2(1), pages 79-83.
    2. Lilia Costabile, 2010. "The International Circuit of Key Currencies and the Global Crisis: Is there Scope for Reform?," Working Papers wp220, Political Economy Research Institute, University of Massachusetts at Amherst.
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    Cited by:

    1. Sébastien Charles & Thomas Dallery & Jonathan Marie, 2015. "Le multiplicateur keynésien en récession : pourquoi une relance est-elle davantage nécessaire aujourd'hui en zone euro ?," CEPN Policy Brief, Centre d'Economie de l'Université de Paris Nord, vol. 7, pages 1-4.

    More about this item


    Â fiscal spending multiplier; input-output calculus; income-expenditure model; European Union; EU;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy


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