How big (small?) are fiscal multipliers?

Ethan Oriel Ilzetzki, Enrique G. Mendoza and Carlos A. Végh

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.

Keywords: government expenditure; macroeconomic policy (search for similar items in EconPapers)
JEL-codes: E2 E6 F41 H5 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2010-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:121725

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