Measuring the Output Responses to Fiscal Policy

Alan J. Auerbach · Yuriy Gorodnichenko

96 citations0/0 files storedNational Bureau of Economic Research

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Monetary Policy and Economic Impact Fiscal Policies and Political Economy Fiscal Policy and Economic Growth

Abstract

A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession.We provide three insights.First, using regime-switching models, we find large differences in the size of spending multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions.Second, we estimate multipliers for more disaggregate spending variables which behave differently relative to aggregate fiscal policy shocks, with military spending having the largest multiplier.Third, we show that controlling for predictable components of fiscal shocks tends to increase the size of the multipliers in recessions.

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References

1996Impulse response analysis in nonlinear multivariate models 2002An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output 2010The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks 2011When Is the Government Spending Multiplier Large?1989New Indexes of Coincident and Leading Economic Indicators 2011Identifying Government Spending Shocks: It's all in the Timing*2006Household Expenditure and the Income Tax Rebates of 2001 2011Simple Analytics of the Government Expenditure Multiplier

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