How Big (Small?) are Fiscal Multipliers?

 
Author/Editor: Ilzetzki, Ethan ; Mendoza, Enrique G. ; Végh Gramont, Carlos A.
 
Publication Date: March 01, 2011
 
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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(s): Consumption | Cross country analysis | Developed countries | Developing countries | Exchange rate regimes | External shocks | Fiscal policy | Government expenditures | Public debt | Trade liberalization

 
English
Publication Date: March 01, 2011
Format: Paper
Stock No: WPIEA2011052 Pages: 66
Price:
US$18.00 (Academic Rate:
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