How Big are Fiscal Multipliers in Latin America?

IMF Working Papers, January 31, 2020

Source details

This paper uses the strategy and data of Blanchard and Perotti (BP) to identify fiscal shocks and estimate fiscal multipliers for the United States.
It computes the cumulative multiplier of Ramey and Zubairy (2018), now common in the literature.
It finds that, contrary to the peak and trough multipliers reported by BP, the cumulative tax multiplier is much larger than the cumulative spending multiplier.
The paper applies the same methodology to estimate the effects of fiscal shocks on economic activity in eight Latin American countries.
The results suggest that fiscal multipliers vary significantly across countries, and in some cases multipliers are larger than previously estimated.

Strategy and data: Uses the strategy and data of Blanchard and Perotti (BP) to identify fiscal shocks.
Multiplier computation: Computes the cumulative multiplier defined by Ramey and Zubairy (2018).
Econometric frameworks referenced: Structural vector autoregression (SVAR), Vector autoregression (VAR).

For the United States:
- The cumulative tax multiplier is much larger than the cumulative spending multiplier, contrary to BP's peak and trough multipliers.
- Conclusion dependence: Conclusions about relative sizes of tax and spending multipliers depend on the definition of multiplier used.
For eight Latin American countries:
- Fiscal multipliers vary significantly across countries.
- In some cases, multipliers are larger than previously estimated.

Subjects: Econometric analysis, Expenditure, Fiscal multipliers, Fiscal policy, Revenue administration, Structural vector autoregression, Vector autoregression.
Keywords: Caribbean, cummulative multiplier, cumulative multiplier, Fiscal multipliers, Fiscal Policy, Global, Macroeconomic Policy, Multipliers, peak multiplier, Stabilization, Structural vector autoregression, SVAR trough multiplier, tax multiplier, Vector autoregression, Western Hemisphere, WP.