Fiscal Multipliers and the State of the Economy
IMF Working Papers, December 5, 2012
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- Fiscal Multipliers and the State of the Economy
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Bibliographic details
- Authors: Anja Baum, Marcos Poplawski Ribeiro
- Published: December 5, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475565829.001
Summary
- 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.
- 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.
Main findings
- Fiscal multipliers differ across countries (G7 excluding Italy), indicating heterogeneous effects of fiscal policy.
- Business cycle position matters: on average, government spending multipliers tend to be larger in downturns than in expansions.
- Revenue multipliers also tend to be larger in downturns than in expansions.
- The asymmetry between downturns and expansions affects the optimal timing and pace of fiscal consolidation.
Policy implications
- Tailor fiscal policy to country-specific multiplier estimates rather than applying a uniform rule across countries.
- Consider larger multiplier effects in downturns when designing fiscal adjustments:
- An upfront fiscal adjustment may have larger negative output effects in downturns because multipliers are larger.
- A more gradual approach may be warranted given asymmetric multiplier behavior across the business cycle.
Content in this bundle
- _wp12286 - Appendix 1 of the April 2012 IMF Fiscal Monitor