The Nexus between Public Debt and the Government Spending Multiplier: Fiscal Adjustments Matter

Yasuharu Iwata and Hirokuni Iiboshi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the evolution of government spending multipliers in the post-war U.S. using a time-varying parameter VAR model. We achieve identification by imposing sign and zero restrictions on the systematic component of policy rules and impulse responses. Our results show that the U.S. multipliers in the post-OBRA93 period are smaller than those in the 1970s. The multipliers are found to be more strongly correlated with the estimated coefficients of the debt-stabilizing rule than the debt-to-GDP ratios. The increased magnitude of fiscal adjustments appears to be the major driving force behind the decline in multipliers rather than debt accumulation itself.

Keywords: Bayesian VARs; Time-varying parameters; Fiscal multipliers; Fiscal policy (search for similar items in EconPapers)
JEL-codes: E32 E62 H60 (search for similar items in EconPapers)
Date: 2023-02-13
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Related works:
Journal Article: The Nexus between Public Debt and the Government Spending Multiplier: Fiscal Adjustments Matter (2023)
Working Paper: The Nexus between Public Debt and the Government Spending Multiplier: Fiscal Adjustments Matter (2023)
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