 Fiscal Multipliers☆☆We thank the editors John Taylor and Harald Uhlig for detailed comments, as well as suggestions and comments by Gabriel Chodorow-Reich, Jon Steinsson, and Michael WeberEmmanuel Farhi and Iván Werning Chapter Chapter 31 in Handbook of Macroeconomics, 2016, vol. 2, pp 2417-2492 from Elsevier Abstract: We provide explicit solutions for government spending multipliers during a liquidity trap and within a fixed exchange regime using standard closed and open-economy New Keynesian models. We confirm the potential for large multipliers during liquidity traps. For a currency union, we show that self-financed multipliers are small, always below unity, unless the accompanying tax adjustments involve substantial static redistribution from low to high marginal propensity to consume agents, or dynamic redistribution from future to present non-Ricardian agents. But outside-financed multipliers which require no domestic tax adjustment can be large, especially when the average marginal propensity to consume on domestic goods is high or when government spending shocks are very persistent. Our solutions are relevant for local and national multipliers, providing insight into the economic mechanisms at work as well as the testable implications of these models. Keywords: Currency unions; Non-Ricardian effects; Open economy model; Liquidity traps; New Keynesian effects; E62 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:macchp:v2-2417 DOI: 10.1016/bs.hesmac.2016.06.006 Access Statistics for this chapter More chapters in Handbook of Macroeconomics from Elsevier |
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