IDEAS home Printed from https://ideas.repec.org/p/aub/autbar/804.10.html
   My bibliography  Save this paper

Budget Constrained Expenditure Multipliers

Author

Listed:
  • Ana-Isabel Guerra

    ()

  • Ferran Sancho

    ()

Abstract

We show that standard expenditure multipliers capture economy-wide effects of new government projects only when financing constraints are not binding. In actual policy making, however, new projects usually need financing. Under liquidity constraints, new projects are subject to two opposite effects: an income effect and a set of spending substitution effects. The former is the traditional, unrestricted, multiplier effect; the latter is the result of expenditure reallocation to upheld effective financing constraints. Unrestricted multipliers will therefore be, as a general rule, upward biased and policy designs based upon them should be reassessed in the light of the countervailing substitution effects.

Suggested Citation

  • Ana-Isabel Guerra & Ferran Sancho, 2010. "Budget Constrained Expenditure Multipliers," UFAE and IAE Working Papers 804.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  • Handle: RePEc:aub:autbar:804.10
    as

    Download full text from publisher

    File URL: http://pareto.uab.es/wp/2010/80410.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, January.
    2. Ferran Sancho, 2009. "Calibration Of Ces Functions For Real-World Multisectoral Modeling," Economic Systems Research, Taylor & Francis Journals, vol. 21(1), pages 45-58.
    3. Kehoe, Timothy J & Polo, Clemente & Sancho, Ferran, 1995. "An Evaluation of the Performance of an Applied General Equilibrium Model of the Spanish Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 115-141, June.
    4. Gary Gillespie & Peter Mcgregor & J. Kim Swales & Ya Ping Yin, 2001. "The Displacement and Multiplier Effects of Regional Selective Assistance: A Computable General Equilibrium Analysis," Regional Studies, Taylor & Francis Journals, vol. 35(2), pages 125-139.
    5. Pyatt, Graham, 1985. "Commodity Balances and National Accounts: A SAM Perspective," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(2), pages 155-169, June.
    6. Ana-Isabel Guerra & Ferran Sancho, 2011. "Budget-constrained expenditure multipliers," Applied Economics Letters, Taylor & Francis Journals, pages 1259-1262.
    7. Victor Ginsburgh & Michiel Keyzer, 2002. "The Structure of Applied General Equilibrium Models," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262571579, January.
    8. Kehoe, Timothy J. & Serra-Puche, Jaime, 1983. "A computational general equilibrium model with endogenous unemployment : An analysis of the 1980 fiscal reform in Mexico," Journal of Public Economics, Elsevier, vol. 22(1), pages 1-26, October.
    9. Chang Seung & Edward Waters, 2010. "Evaluating Supply-Side And Demand-Side Shocks For Fisheries: A Computable General Equilibrium (Cge) Model For Alaska," Economic Systems Research, Taylor & Francis Journals, vol. 22(1), pages 87-109.
    10. N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 74-79, January.
    11. N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 112-117, January.
    12. Burfisher,Mary E., 2011. "Introduction to Computable General Equilibrium Models," Cambridge Books, Cambridge University Press, number 9780521139779, December.
    13. Jan Oosterhaven & Dirk Stelder, 2002. "Net Multipliers Avoid Exaggerating Impacts: With A Bi-Regional Illustration for the Dutch Transportation Sector," Journal of Regional Science, Wiley Blackwell, vol. 42(3), pages 533-543.
    14. Mark Partridge & Dan Rickman, 2010. "Computable General Equilibrium (CGE) Modelling for Regional Economic Development Analysis," Regional Studies, Taylor & Francis Journals, vol. 44(10), pages 1311-1328.
    15. Burfisher,Mary E., 2011. "Introduction to Computable General Equilibrium Models," Cambridge Books, Cambridge University Press, number 9780521766968, December.
    16. Louis de Mesnard, 2002. "NoteAbout the Concept of "Net Multipliers"," Journal of Regional Science, Wiley Blackwell, vol. 42(3), pages 545-548.
    17. Ballard, Charles L. & Fullerton, Don & Shoven, John B. & Whalley, John, 2009. "A General Equilibrium Model for Tax Policy Evaluation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226036335.
    18. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "Introduction to "A General Equilibrium Model for Tax Policy Evaluation"," NBER Chapters,in: A General Equilibrium Model for Tax Policy Evaluation, pages 1-5 National Bureau of Economic Research, Inc.
    19. Blanchflower, David G & Oswald, Andrew J, 1994. "Estimating a Wage Curve for Britain: 1973-90," Economic Journal, Royal Economic Society, vol. 104(426), pages 1025-1043, September.
    20. Diamond, J, 1974. "The Analysis of Structural Constraints in Developing Economies: A Case Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 36(2), pages 95-108, May.
    21. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1993. "What do governments buy?," CEMA Working Papers 513, China Economics and Management Academy, Central University of Finance and Economics.
    22. Miller,Ronald E. & Blair,Peter D., 2009. "Input-Output Analysis," Cambridge Books, Cambridge University Press, number 9780521517133, December.
    23. Pyatt, F Graham & Round, Jeffery I, 1979. "Accounting and Fixed Price Multipliers in a Social Accounting Matrix Framework," Economic Journal, Royal Economic Society, vol. 89(356), pages 850-873, December.
    24. Mark D. Partridge & Dan S. Rickman, 1998. "Regional Computable General Equilibrium Modeling: A Survey and Critical Appraisal," International Regional Science Review, , vol. 21(3), pages 205-248, December.
    25. Erik Dietzenbacher, 2005. "More on multipliers," Journal of Regional Science, Wiley Blackwell, vol. 45(2), pages 421-426.
    26. Miller,Ronald E. & Blair,Peter D., 2009. "Input-Output Analysis," Cambridge Books, Cambridge University Press, number 9780521739023, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Manuel Alejandro Cardenete & Ferran Sancho, 2012. "The Role Of Supply Constraints In Multiplier Analysis," Economic Systems Research, Taylor & Francis Journals, vol. 24(1), pages 21-34, June.
    2. repec:sdo:regaec:v:26:y:2017:i:2_7 is not listed on IDEAS
    3. M. Alejandro Cardenete & M. Carmen Lima & Ferran Sancho, 2017. "A multiplier evaluation of primary factors supply–shocks," Working Papers 17.01, Universidad Pablo de Olavide, Department of Economics, Quantitative Methods and Economic History.

    More about this item

    Keywords

    Government multipliers; fiscal stimulus; expenditures substitution effects;

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aub:autbar:804.10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Xavier Vila). General contact details of provider: http://edirc.repec.org/data/ufuabes.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.