DP10584 Stimulus versus Austerity: The Asymmetric Government Spending Multiplier
|Author(s):||Régis Barnichon, Christian Matthes|
|Publication Date:||May 2015|
|Keyword(s):||fiscal policy, Gaussian Mixture Approximation|
|Programme Areas:||International Macroeconomics, Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10584|
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.