Why the Keynesian Multiplier Increases During Hard Times: A Theoretical Explanation Based on Rentiers' Saving Behaviour

Sebastien Charles, Thomas Dallery and Jonathan Marie

Metroeconomica, 2015, vol. 66, issue 3, 451-473

Abstract: type="main">

This article analyses the Keynesian multiplier from a new perspective. Recent empirical studies emphasize that the multiplier is endogenous to the level of economic activity, increasing during recessions and declining in expansions. Here, we propose a plausible explanation for this established fact based on the procyclicality of capitalists' propensity to save. Then, using a standard Kaleckian model of growth and distribution, we perform some simple simulations showing that fiscal multipliers increase during turbulent times. Consequently, this argues against cutting public spending for economies in recession.

Date: 2015
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