State-dependent effects of fiscal policy

Steven Fazzari, James Morley and Irina Panovska

Studies in Nonlinear Dynamics & Econometrics, 2015, vol. 19, issue 3, 285-315

Abstract: We investigate the effects of government spending on US output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical findings support state-dependent effects of fiscal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967 to 2012 according to the estimated threshold level.

Keywords: Bayesian; government spending; impulse-response comparison; nonlinear dynamics; threshold model; vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (100)

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Working Paper: State-Dependent Effects of Fiscal Policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:sndecm:v:19:y:2015:i:3:p:285-315:n:5

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DOI: 10.1515/snde-2014-0022

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