Stimulus versus Austerity: The Asymmetric Government Spending Multiplier

Régis Barnichon and Christian Matthes

No 10584, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Despite intense scrutiny estimates of the government spending multiplier remain highly uncertain with values ranging from 0.5 to 2. While a fiscal consolidation is generally assumed to have the same (mirror-image) effect as a fiscal expansion, we show that relaxing this assumption is crucial to understanding the effects of fiscal policy. The government spending multiplier is substantially below 1 for fiscal expansions, but the multiplier is substantially above 1 for fiscal consolidations.

Keywords: Fiscal policy; Gaussian mixture approximation (search for similar items in EconPapers)
JEL-codes: C32 E62 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (13)

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