The Missing Intercept: A Demand Equivalence Approach

Christian Wolf

American Economic Review, 2023, vol. 113, issue 8, 2232-69

Abstract: I give conditions under which changes in private spending are accommodated in general equilibrium exactly like changes in aggregate fiscal expenditure. Under such demand equivalence, researchers can use time series evidence on fiscal multipliers to recover the general equilibrium "missing intercept" of shocks to private spending identified in the cross section. Through the lens of this theory, time series estimates of a fiscal multiplier around one suggest a missing intercept close to zero—an observation that I illustrate with an application to the 2008 tax rebates. I also discuss the robustness of this aggregation approach to plausible violations of demand equivalence.

JEL-codes: E12 E21 E24 E62 G51 H24 H31 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)

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DOI: 10.1257/aer.20211751

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