How Big (Small?) are Fiscal Multipliers?

By Ethan Ilzetzki, Enrique G. Mendoza, Carlos A. Végh Gramont

March 1, 2011

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Ethan Ilzetzki, Enrique G. Mendoza, and Carlos A. Végh Gramont How Big (Small?) are Fiscal Multipliers?, (USA: International Monetary Fund, 2011) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fisscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.

Subject: Exchange rate flexibility, Fiscal multipliers, Fiscal stimulus, Government consumption, Public investment spending

Keywords: Country, Government, Government investment, WP

Publication Details

Pages:

66
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/052
Stock No:

WPIEA2011052
ISBN:

9781455218028
ISSN:

1018-5941

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