Fiscal Multipliers and the State of the Economy
December 5, 2012
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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. Moreover, 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.
Subject: Expenditure, Fiscal consolidation, Fiscal multipliers, Fiscal policy, Output gap, Production
Keywords: business cycle, Europe, Fiscal consolidation, fiscal multiplier, fiscal multipliers, Fiscal policy, impact multiplier, mean output gap, multiplier prediction, multipliers call, nonlinear analysis, Output gap, output gap data, output gap regime, revenue multiplier, WP
Pages:
31
Volume:
2012
DOI:
Issue:
286
Series:
Working Paper No. 2012/286
Stock No:
WPIEA2012286
ISBN:
9781475565829
ISSN:
1018-5941
