Can public expenditure stabilize output? Multipliers and policy interdependence in Queensland and Australia

Fabrizio Carmignani ()

Economic Analysis and Policy, 2015, vol. 47, issue C, 69-81

Abstract: The debate on the use of fiscal policy as a tool of macroeconomic stabilization is quite vehement in Australia and abroad. This paper contributes to the discussion by estimating government expenditure multipliers for Australia and one if its states, Queensland. Impulse response functions derived from a SVAR model indicate that the multipliers are positive and greater than one. This suggests that government consumption expenditure should be used counter-cyclically to stabilize output. However, a chronology of business cycles and government expenditure dynamics reveals that this is not frequently the case. At both national and state level, government consumption expenditure “aligns” with the business cycle only about one third of the times. This means that more often than not, fiscal policy is run pro-cyclically or (at best) a-cyclically. Moreover, from the point of view of Queensland, federal and state fiscal policies are jointly aligned with the Queensland business cycle only 20% of the times. Conversely, federal and state fiscal policies are jointly misaligned with the Queensland business cycle in 60 quarters out of 116, i.e. about 50% of the time. This misalignment is a factor of destabilization of the Queensland economy.

Keywords: Government consumption expenditure; Multiplier; SVAR; Australia; Queensland (search for similar items in EconPapers)
JEL-codes: C32 C54 E62 E63 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0313592615300242
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:47:y:2015:i:c:p:69-81

DOI: 10.1016/j.eap.2015.07.003

Access Statistics for this article

Economic Analysis and Policy is currently edited by Clevo Wilson

More articles in Economic Analysis and Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().