Procyclical and countercyclical fiscal multipliers: Evidence from OECD countries

Daniel Riera-Crichton, Carlos Vegh and Guillermo Vuletin

Journal of International Money and Finance, 2015, vol. 52, issue C, 15-31

Abstract: Using non-linear methods, we argue that existing estimates of government spending multipliers in expansion and recession may yield biased results by ignoring whether government spending is increasing or decreasing. In the case of OECD countries, the problem originates in the fact that, contrary to one's priors, it is not always the case that government spending is going up in recessions (i.e., acting countercyclically). In almost as many cases, government spending is actually going down (i.e., acting procyclically). Since the economy does not respond symmetrically to government spending increases or decreases, the “true” long-run multiplier for bad times (and government spending going up) turns out to be 2.3 compared to 1.3 if we just distinguish between recession and expansion. In extreme recessions, the long-run multiplier reaches 3.1.

Keywords: Fiscal multiplier; Fiscal policy; Government spending; Fiscal shock; Procyclicality; Countercyclicality (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (92)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560614002046
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Procyclical and Countercyclical Fiscal Multipliers: Evidence from OECD Countries (2014)
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:jimfin:v:52:y:2015:i:c:p:15-31

DOI: 10.1016/j.jimonfin.2014.11.011

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().