Private debt overhang and the government spending multiplier: Evidence for the United States

Marco Bernardini and Gert Peersman ()

Journal of Applied Econometrics, 2018, vol. 33, issue 4, 485-508

Abstract: Using state‐dependent local projections and historical US data, we find that government spending multipliers are considerably larger in periods of private debt overhang. In particular, while multipliers are below or close to one in low private debt states, we find significant crowding‐in of private spending in periods of debt overhang, resulting in multipliers that are much larger than one. In high private debt episodes, more government purchases even reduce the ratio of government debt to gross domestic product. These results are robust for the type of shocks, and when we control for the business cycle, financial crises, deleveraging episodes, government debt overhang, and the zero‐lower‐bound.

Date: 2018
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https://doi.org/10.1002/jae.2618

Related works:
Working Paper: Private Debt Overhang and the Government Spending Multiplier: Evidence for the United States (2015)
Working Paper: PRIVATE DEBT OVERHANG AND THE GOVERNMENT SPENDING MULTIPLIER: EVIDENCE FOR THE UNITED STATES (2015)
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