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Stimulus versus Austerity: The Asymmetric Government Spending Multiplier

Régis Barnichon and Christian Matthes ()

No 10584, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Despite intense scrutiny estimates of the government spending multiplier remain highly uncertain with values ranging from 0.5 to 2. While a fiscal consolidation is generally assumed to have the same (mirror-image) effect as a fiscal expansion, we show that relaxing this assumption is crucial to understanding the effects of fiscal policy. The government spending multiplier is substantially below 1 for fiscal expansions, but the multiplier is substantially above 1 for fiscal consolidations.

Keywords: fiscal policy; Gaussian Mixture Approximation (search for similar items in EconPapers)
JEL-codes: C32 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pbe
Date: 2015-05
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