Fiscal Multipliers
IMF Staff Position Notes, May 20, 2009
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Bibliographic details
- Authors: Antonio Spilimbergo, Martin Schindler, Steven A. Symansky
- Published: May 20, 2009
- Series: IMF Staff Position Notes
- DOI: https://doi.org/10.5089/9781462372737.004
Summary and purpose
- Provides background information for policymakers on fiscal multipliers, including quantitative estimates.
- Defines the fiscal multiplier as the ratio of a change in output to an exogenous change in the fiscal deficit with respect to their respective baselines.
- Emphasizes that past research on multiplier estimates can guide current estimates, but judgment based on current conditions is important.
Key findings on multiplier size and behavior
- The size of the multiplier is larger if:
- leakages are few;
- the monetary conditions are accommodative;
- the country’s fiscal position after the stimulus is sustainable.
- Fiscal expansions can be contractionary if they decrease consumers’ and investors’ confidence, especially if the fiscal expansion raises, or reinforces, fiscal sustainability concerns.
- The degree of financial market development has an ambiguous effect on multipliers, depending on how financial development affects liquidity constraints and the government’s ability to finance the fiscal deficit.
- Fiscal multipliers have been calculated for some countries but should be carefully re-examined considering the current events.
Policy implications and guidance
- Use past research as a starting point for multiplier estimates, but apply judgment informed by current economic, monetary, financial market, and fiscal-sustainability conditions.
- Ensure monetary policy accommodation and minimize leakages to increase the effectiveness of fiscal stimulus.
- Consider fiscal sustainability and confidence effects: design fiscal expansions to avoid reinforcing investor and consumer concerns that could offset stimulus effects.
Methodological and contextual notes
- Multiplier defined relative to baselines for output and exogenous changes in the fiscal deficit.
- The ambiguous role of financial market development implies that country-specific analysis is necessary, particularly in assessing liquidity constraints and financing capacity.
- Re-examination of existing multiplier estimates is recommended in light of changing economic circumstances.