Fiscal Multipliers and the State of the Economy
International Monetary Fund, Dec 5, 2012 - Business & Economics - 31 pages
Only a few empirical studies have analyzed the relationship between fiscal multipliers and the underlying state of the economy. This paper investigates this link on a country-by-country basis for the G7 economies (excluding Italy). Our results show that fiscal multipliers differ across countries, calling for a tailored use of fiscal policy. Moreover, the position in the business cycle affects the impact of fiscal policy on output: on average, government spending, and revenue multipliers tend to be larger in downturns than in expansions. This asymmetry has implications for the choice between an upfront fiscal adjustment versus a more gradual approach.
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96 Positive Revenue analysis approach Auerbach and Gorodnichenko Batini Baum and Koester Baunsgaard business cycle Callegari Canada Cloyne countercyclical country-by-country Cumulative Fiscal Multipliers Cumulative Global Impulse cumulative multipliers Data Sources Descriptive Statistics effects of fiscal exogenous Favero fiscal adjustment fiscal consolidation Fiscal Contraction fiscal policy shock fiscal shock France gap is negative Germany Giavazzi GIRF Global Impulse Response government spending impact of fiscal Impulse Response Functions International Monetary Fund IRFs Italy Japan Melina monetary policy negative output gap Negative outputgap outputgap Negative Positive Negative nonlinear OECD output gap regime output growth outputgap outputgap outputgap policy on output Poplawski-Ribeiro Positive Negative outputgap Positive Negative Positive Positive Spending quarterly data reﬂect regime positive revenue revenue and expenditure Revenue Expansion revenue multipliers Romer and Romer shock is implemented spending and revenue Spending Expansion spending multipliers Spending Shock Spilimbergo statistically significant threshold value threshold variable Tsay United Kingdom up-front vector autoregressive