When is the fiscal multiplier high? A comparison of four business cycle phases

Travis Berge, Maarten De Ridder and Damjan Pfajfar

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper compares the effect of fiscal spending on economic activity across various phases of the business cycle. We show that the fiscal multiplier is higher when unemployment is increasing than when it is decreasing. Conversely, fiscal multipliers do not depend on whether the unemployment rate is above or below its long-term trend. This result emerges both in the analysis of long time-series at the U.S. national level as well as for a post-Vietnam War panel of U.S. states. Our findings synthesize previous, at times conflicting, evidence on the state-dependence of fiscal multipliers and imply that fiscal intervention early on in economic downturns is most effective at stabilizing output.

JEL-codes: E6 J1 N0 (search for similar items in EconPapers)
Date: 2021-09-01
New Economics Papers: this item is included in nep-his and nep-sea
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Citations: View citations in EconPapers (2)

Published in European Economic Review, 1, September, 2021, 138. ISSN: 0014-2921

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http://eprints.lse.ac.uk/111517/ Open access version. (application/pdf)

Related works:
Journal Article: When is the fiscal multiplier high? A comparison of four business cycle phases (2021)
Working Paper: When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases (2020)
Working Paper: When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:111517

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