Working Paper: NBER ID: w25020
Authors: Adrien Auclert; Matthew Rognlie; Ludwig Straub
Abstract: We generalize the traditional, static Keynesian cross by deriving an intertemporal Keynesian cross for the dynamic output response to government spending and taxes in microfounded general equilibrium models. Intertemporal marginal propensities to consume (iMPCs) are sufficient statistics for this response, with fiscal multipliers depending only on the interaction between iMPCs and public deficits. We provide empirical estimates of iMPCs and argue that they are inconsistent with representative- agent or two-agent models, but can be matched by certain heterogeneous-agent models. Models that match empirical iMPCs imply larger and more persistent output responses to deficit-financed fiscal policy, with cumulative spending multipliers above one.
Keywords: fiscal multipliers; intertemporal marginal propensities to consume; government spending; taxes; aggregate economic activity
JEL Codes: D1; E21; E22; E23; E32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government spending (dG) (E20) | output (dY) (C67) |
| taxes (dT) (H29) | output (dY) (C67) |
| intertemporal marginal propensities to consume (impcs) (D15) | output (dY) (C67) |
| output (dY) (C67) | consumption response (dc) (D12) |
| government spending (dG) and taxes (dT) (H59) | output (dY) (C67) |
| intertemporal marginal propensities to consume (impcs) and public deficits (E62) | fiscal multiplier (E62) |