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A note on the policy implications of the fiscal multiplier

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  • Evangelos F. Magirou

Abstract

We present an elementary analysis of the dynamical aspects of the GDP / government surplus multiplier with relevance to the assessment of a country's debt repayment policy. We show the (at first) counter intuitive result that in order to reduce the Debt/GDP ratio, countries with high Debt to GDP should go into further debt, as long as the Debt to GDP ratio is roughly greater than the inverse of the multiplier. Thus small values of the multiplier make further debt undesirable, and conversely.

Suggested Citation

  • Evangelos F. Magirou, 2013. "A note on the policy implications of the fiscal multiplier," Papers 1310.3083, arXiv.org.
    • Handle: RePEc:arx:papers:1310.3083
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    References listed on IDEAS

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    1. Michael Woodford, 2011. "Simple Analytics of the Government Expenditure Multiplier," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 1-35, January.
    2. International Monetary Fund, 2012. "Georgia: Request for a Stand-By Arrangement and an Arrangement Under the Stand-by Credit Facility: Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Georgia," IMF Staff Country Reports 2012/098, International Monetary Fund.
    3. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
    4. International Monetary Fund, 2012. "Greece: Request for Extended Arrangement Under the Extended Fund Facility: Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Greece," IMF Staff Country Reports 2012/057, International Monetary Fund.
    5. International Monetary Fund, 2012. "Republic of Kosovo: Request for Stand-By Arrangement: Staff Report; Press Release on the Executive Board Discussion," IMF Staff Country Reports 2012/100, International Monetary Fund.
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