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How Big (Small?) Are Fiscal Multipliers?

  • Ethan Ilzetzki
  • Enrique G. Mendoza
  • Carlos A. Végh Gramont

We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fisscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/52.

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Length: 66
Date of creation: 01 Mar 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/52
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