How Big (Small?) are Fiscal Multipliers?

Abstract

Wieladek and participants at several conferences and seminars for their useful comments. We thank numerous officials at …nance ministries, central banks, national statistical agencies, and the IMF for their assistance in compiling the dataset. Giagkos Alexopoulos, Florian Blum and Daniel Osorio-Rodriguez provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Testing the Relationship between Government Expenditure and Private Investment: The Case of Small Open Economies

“…[11] provided supporting evidence, using panel data for 19 OECD countries, that crowding out effects on consumption and investment are found to be decreasing in a country's openness to trade. Empirical results of [12] showed that fiscal multipliers in open economies are smaller than in closed economies, as fiscal multipliers in high-debt countries are negative.…”

Financial Fragility and the Fiscal Multiplier

“…Blanchard and Perotti (2002), using a SVAR (Structural Vector Autoregression) approach, find a multiplier of 1 in the U.S. for government purchases. Ilzetzki et al (2013) find that for countries with debt levels exceeding 60% of GDP, the impact multiplier is close to zero, and the long run multiplier -3, suggesting that debt sustainability is an important determinant of the output effects of fiscal stimuli. Corsetti et al (2012) specifically investigate the size of the fiscal multiplier in times of financial crises.…”

Does investment in the health sector promote or inhibit economic growth?

“…When we adjusted for the trade balance, the multipliers for components of government spending which are tradable, such as defence, were attenuated, whereas semi-tradable components, such as health and education, were not significantly altered. Across countries, the magnitude of the fiscal multiplier is also likely to depend on several country-specific factors and market characteristics, including the level of economic development, exchange rate regime, openness to trade, and public debt dynamics [31,32]. Third, the data on government spending could not differentiate the growth effects of government spending that acts as a stimulus from those effects of spending which replaces spending during recessions.…”