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Fiscal multipliers and the level of economic activity: a structural threshold VAR model for the UK

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  • Rozina Shaheen
  • Paul Turner

Abstract

This article examines the impact of fiscal policy shocks in the UK economy using a nonlinear structural threshold vector autoregression (TVAR) model which links Gross Domestic Product (GDP), government expenditure and tax receipts. The model is structural in the sense that the contemporaneous linkages between the variables are determined by economic theory and by our assumptions about the institutional structure of the tax and transfer system. This structure is also influenced by the state of the economy as measured by the deviation of GDP from the Hodrick-Prescott trend. We find that the state of the economy is important, with fiscal policy having very different multiplier effects during ‘boom’ periods relative to ‘normal’ periods. However, we find low values for the government expenditure multiplier in all regimes.

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  • Rozina Shaheen & Paul Turner, 2020. "Fiscal multipliers and the level of economic activity: a structural threshold VAR model for the UK," Applied Economics, Taylor & Francis Journals, vol. 52(17), pages 1857-1865, April.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:17:p:1857-1865
    DOI: 10.1080/00036846.2019.1679347
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    Cited by:

    1. Dime, Roselle & Ginting, Edimon & Zhuang, Juzhong, 2021. "Estimating Fiscal Multipliers in Selected Asian Economies," ADB Economics Working Paper Series 638, Asian Development Bank.

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