Desperate times call for desperate measures: government spending multipliers in hard times

Sokbae (Simon) Lee, Yuan Liao, Myung Hwan Seo and Youngki Shin
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Yuan Liao: Institute for Fiscal Studies

No CWP29/20, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: We investigate state-dependent effects of ?scal multipliers and allow for endogenous sample splitting to determine whether the US economy is in a slack state. When the endogenized slack state is estimated as the period of the unemployment rate higher than about 12 percent, the estimated cumulative multipliers are signi?cantly larger during slack periods than non-slack periods and are above unity. We also examine the possibility of time-varying regimes of slackness and ?nd that our empirical results are robust under a more ?exible framework. Our estimation results point out the importance of the heterogenous effects of ?scal policy and shed light on the prospect of ?scal policy in response to economic shocks from the current COVID-19 pandemic.

Date: 2020-06-24
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: DESPERATE TIMES CALL FOR DESPERATE MEASURES: GOVERNMENT SPENDING MULTIPLIERS IN HARD TIMES (2020)
Working Paper: Desperate times call for desperate measures: government spending multipliers in hard times (2020)
Working Paper: Desperate times call for desperate measures: government spending multipliers in hard times (2019)
Working Paper: Desperate times call for desperate measures: government spending multipliers in hard times (2019)
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