Understanding the Size of the Government Spending Multiplier: It's in the Sign

Régis Barnichon and Christian Matthes

No 17-15, Working Paper from Federal Reserve Bank of Richmond

Abstract: The literature on the government spending multiplier has implicitly assumed that an increase in government spending has the same (mirror-image) effect as a decrease in government spending. We show that relaxing this assumption is important to understand the effects of fiscal policy. Regardless of whether we identify government spending shocks from (i) a narrative approach, or (ii) a timing restriction, we find that the contractionary multiplier?the multiplier associated with a negative shock to government spending?is above 1 and even larger in times of economic slack. In contrast, the expansionary multiplier?the multiplier associated with a positive shock?is substantially below 1 regardless of the state of the cycle. These results help understand seemingly conflicting results in the literature.

Keywords: government spending (search for similar items in EconPapers)
JEL-codes: C32 E62 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2017-12-15
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Understanding the Size of the Government Spending Multiplier: It’s in the Sign (2022)
Working Paper: Understanding the Size of the Government Spending Multiplier: It's in the Sign (2020)
Working Paper: Understanding the Size of the Government Spending Multiplier: It's in the Sign (2020)
Working Paper: Understanding the size of the government spending multiplier: It’s in the sign (2020)
Working Paper: Understanding the Size of the Government Spending Multiplier: It's in the Sign (2016)
Working Paper: Understanding the size of the government spending multiplier: It's in the sign (2016)
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