State-dependent effects of fiscal policy

By Steven M. Fazzari, James Morley, Irina Panovska. 2014

245 citations recorded by the source corpus.

Abstract We investigate the effects of government spending on US output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical findings support state-dependent effects of fiscal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967 to 2012 according to the estimated threshold level.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/897915eed807f807ac38d4376b1895a824dfc2b9

Citations in the corpus

• Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data (2014, unknown): “41 VARs with various methodologies to construct state-dependent IRFs and fiscal multipliers have been employed by Batini, Callegari, and Melina (2012), Baum, PoplawskiRibeiro, and Weber (2012), and Fazzari et al. (2015).”