Working Paper: CEPR ID: DP10584
Authors: Rgis Barnichon; Christian Matthes
Abstract: 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.
Keywords: Fiscal policy; Gaussian mixture approximation
JEL Codes: C32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government Spending (H59) | Output (Y10) |
| Fiscal Consolidation (E62) | Output (Y10) |
| Fiscal Expansion (E62) | Output (Y10) |
| Fiscal Policy (E62) | Output (Y10) |