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State-Dependent Effects of Fiscal Policy

Listed author(s):
  • Steven Fazzari

    (Washington University in St. Louis)

  • James Morley

    (School of Economics, University of New South Wales)

  • Irina Panovska

    ()

    (Rauch Business Center, Lehigh University)

We investigate the eects of government spending on U.S. output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical ndings support state-dependent eects of scal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967-2012 according to the estimated threshold level.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-27.pdf
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-27C.

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Length: 49 pages
Date of creation: Aug 2014
Handle: RePEc:swe:wpaper:2012-27c
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Web page: http://www.economics.unsw.edu.au/
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