How Big (Small?) are Fiscal Multipliers?

Author/Editor:

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

Publication Date:

March 1, 2011

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 11/52

Subject:

English

Publication Date:

March 1, 2011

ISBN/ISSN:

9781455218028/1018-5941

Stock No:

WPIEA2011052

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

66

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