Discussion paper

DP10584 Stimulus versus Austerity: The Asymmetric Government Spending Multiplier

Despite intense scrutiny estimates of the government spending multiplier remain highly uncertain with values ranging from 0.5 to 2. While a fiscal consolidation is generally assumed to have the same (mirror-image) effect as a fiscal expansion, we show that relaxing this assumption is crucial to understanding the effects of fiscal policy. The government spending multiplier is substantially below 1 for fiscal expansions, but the multiplier is substantially above 1 for fiscal consolidations.

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Citation

Barnichon, R and C Matthes (2015), ‘DP10584 Stimulus versus Austerity: The Asymmetric Government Spending Multiplier‘, CEPR Discussion Paper No. 10584. CEPR Press, Paris & London. https://cepr.org/publications/dp10584