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The young, the old, and the government: demographics and fiscal multipliers

Henrique Basso () and Omar Rachedi ()
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Omar Rachedi: Banco de España

No 1837, Working Papers from Banco de España, Working Papers Homepage

Abstract: We document that fiscal multipliers depend on the age structure of the population. Using the variation in military spending and birth rates across U.S. states, we show that local fiscal multipliers increase with the share of young people in total population. We rationalize this fact with a parsimonious life-cycle open-economy New Keynesian model with credit market imperfections. The model explains 65% of the relationship between local fiscal multipliers and demographics. We use the model to study the implications of population aging, and find that nowadays U.S. national fiscal multipliers are 36% lower than in 1980.

Keywords: life-cycle; population aging; fiscal policy (search for similar items in EconPapers)
JEL-codes: E30 E62 J11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge and nep-mac
Date: 2018-11
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1837

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