The Young, the Old, and the Government: Demographics and Fiscal Multipliers

Henrique Basso and Omar Rachedi

American Economic Journal: Macroeconomics, 2021, vol. 13, issue 4, 110-41

Abstract: We document that government spending multipliers depend on the population age structure. Using the variation in military spending and birth rates across US states, we show that the local fiscal multiplier is 1.5 and increases with the population share of young people, implying multipliers of 1.1–1.9 in the interquartile range. A parsimonious life cycle open economy New Keynesian model with credit market imperfections and age-specific differences in labor supply and demand explains 87 percent of the relationship between local multipliers and demographics. The model implies that the US population aging between 1980 and 2015 caused a 38 percent drop in national government spending multipliers.

JEL-codes: D15 E12 E24 E62 J11 J22 J23 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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Working Paper: The young, the old, and the government: demographics and fiscal multipliers (2018)
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DOI: 10.1257/mac.20190174

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