Deficits, Public Debt Dynamics, and Tax and Spending Multipliers

Abstract

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Small and Orthodox Fiscal Multipliers at the Zero Lower Bound

“…Using the loglinearized equilibrium conditions produces results that are close to the results reported in Denes, Eggertsson, and Gilbukh (2013). The tax multiplier using our calibration is 0.11 as compared to their value of 0.1 and the government purchase multiplier using our calibration is 1.0,8 as compared to their value of 1.2.…”

“…A disturbing aspect of our results is that the asymptote occurs at a value of p that is close to values maintained in previous research. Denes, Eggertsson, and Gilbukh (2013) To the right of the asymptote, the targeted nonlinear equilibrium has the property that slope(AS) > slope(AD) > 0 and it follows immediately from Proposition 5 that the sign of the labor tax multiplier must be negative. The loglinearized solution is consistent with this In Section 3.1, we discussed the possibility of multiple equilibria and sunspot equilibria when the loglinearized solution is a Type 2 equilibrium.…”

“…Broda and Weinstein (2004) find that the median value of this parameter ranges from 3 to 4.3 using 4-digit level industry level data for alternative country pairs. Denes, Eggertsson, and Gilbukh (2013) estimate θ to be about 13 in a representative agent NK model. It is also well known that β is not well identified in DSGE models.…”

Do Fiscal Multipliers Depend on Fiscal Positions?

“…For instance, the long run multiplier is close to unity when debt is low (strong …scal position), but is negative for high levels of debt (weak …scal position). 16 The di¤erence in the estimated multipliers for low and high levels of debt is particularly signi…cant at longer horizons. Our empirical results therefore lend support to the theoretical insights of earlier studies which show that a weak …scal position can result in stronger crowding-out e¤ects, blunting the stimulative e¤ects of …scal policy (Sutherland 1997; Perroti 1999; Corsetti et al 2013; Bi, Shen, and Yang 2014).…”

The growth impact of discretionary fiscal policy measures

“…Apart from an arugment by Easterly et al (2008), which is more relevant for developing countries, there are recent theoretical papers by Denes et al (2012) and DeLong and Summers (2012), which show that such an effect could occur if the interest rate were close to zero. These findings are therefore not applicable to peripheral European countries, which face funding difficulties and rising interest costs.…”