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Regime-Dependent Fiscal Multipliers in the United States

Gilles Dufrénot (), Aurélia Jambois (), Laurine Jambois () and Guillaume Khayat ()
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Aurélia Jambois: Aix-Marseille University
Laurine Jambois: Aix-Marseille University
Guillaume Khayat: Aix-Marseille University

Open Economies Review, 2016, vol. 27, issue 5, 923-944

Abstract: Abstract This paper proposes a regime-dependent model to estimate fiscal multipliers in the US. Output, consumption and investment are assumed to respond to tax and spending changes in a nonlinear manner. Fiscal multipliers are time-varying because their size and sign depend upon the state of the economy (upturns and downturns). Keynesian effects appear essentially during downturns, while anti-Keynesian effects are observed during expansions. Transfer payments contributes to a higher private consumption when they are given to consumers in bad times. Reducing taxes boosts consumption in good times. Investment responds positively to lower taxes during downturns, but negatively in the upturn regime. Our results thus suggest that Keynesian effects have been associated to expansionary policies during recessions, while anti-Keynesian effects were observed during expansions illustrating situations of expansionary fiscal consolidation. The effectiveness of fiscal positive impulses increases in downturns relative to upturns. A corollary is therefore that austerity measures during recessions would have detrimental effects on the GDP and its components.

Keywords: Fiscal multipliers; Regime-dependent; Keynesian effects; Anti-Keynesian effects (search for similar items in EconPapers)
JEL-codes: E32 E62 H3 H5 (search for similar items in EconPapers)
Date: 2016
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