American Economic Journal Economic Policy· 2012Q1
Measuring the Output Responses to Fiscal Policy
- 1,748citations
- Q1SCImago
- 2012year
Short summary
Fiscal policy is significantly more effective in recessions than expansions, with military spending showing the largest multiplier effect.
AI-generated from the title and abstract; the full text is not read.
Key points
- Fiscal policy is substantially more effective in recessions than during economic expansions.
- Military spending exhibits the largest multiplier effect among disaggregated spending variables.
- Controlling for predictable components of fiscal shocks increases recessionary multiplier sizes.
AI-generated from the title and abstract; the full text is not read.
Abstract
A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession. We provide three insights. First, using regime-switching models, we find large differences in the size of spending multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions. Second, we estimate multipliers for more disaggregate spending variables which behave differently relative to aggregate fiscal policy shocks, with military spending having the largest multiplier. Third, we show that controlling for predictable components of fiscal shocks tends to increase the size of the multipliers in recessions. (JEL C32, E62, H20, H62, H63)
The authors' abstract, as published at the source. American Economic Journal Economic Policy, 2012 · DOI ↗
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Field: General Economics, Econometrics and Finance
General Economics, Econometrics and FinanceEconomics, Econometrics and Finance