How Big (Small?) are Fiscal Multipliers?

By Ethan Ilzetzki, Enrique G. Mendoza, C. Végh. Social Science Research Network, 2011

380 citations recorded by the source corpus.

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.

View Paper: https://www.semanticscholar.org/paper/e3b8146fc5db1d08aeeeba1776690393a7b5bd95

Citations in the corpus

• Fiscal multipliers in the 21st century (2016, unknown): “The Choleski factorization that Ilzetzki et al. (2013) use to identify20 the causal effect of government consumption on output implies that for government consumption21 to have its total effect on output in a year (directly and through the other variables in the system),22 it takes a total of four…”
• Government Spending Multipliers in Developing Countries : Evidence from Lending by Official Creditors (2012, unknown): “32 Interestingly, this finding is the opposite of Ilzetzki, Mendoza, and Végh ( 2013 ) who work with a set of developed and emerging market economies where financial openness is likely to be greater than in my developing country sample.”
• On Measuring the Effects of Fiscal Policy in Recessions (2011, unknown): “28 Kaplan and Violante (2011) is a partial equilibrium model that focuses on how the state of the economy influences the quantitative response of aggregate demand to the policy.”
• Fiscal Multipliers and the State of the Economy (2012, unknown): “…Auerbach and Gorodnichenko (2012b) find that the size of government debt reduces the response of output to government expenditure shocks (see also Ilzetzki, Mendoza, and Vegh, 2010).17 Thus, the analysis may have overestimated fiscal multipliers, especially in high debt countries.18 Second, some…”
• What Determines Government Spending Multipliers? (2012, unknown): “Most closely related to our work is independent research by Ilzetzki et al. (2009a), who also study the transmission of fiscal policy across economic environments by estimating panel VARs for groups of countries distinguished by income level, the size of foreign debt, the exchange rate regime, and o”
• Fiscal Rules and the Sovereign Default Premium (2022, unknown): “Pappa and Vassilatos (2007) and Poplawski Ribeiro et al. (2008) argue that debt limits may be preferable over constraints on the government’s deficit.”
• Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan (2018, unknown): “Blanchard and Perotti (2002) and subsequent studies such as Auerbach and Gorodnichenko (2012b,a) and Ilzetzki et al. (2013) among others have used this assumption to identify government spending shocks. The basis to use this identification for Japanese data is that there is a time lag for fiscal pol”
• A Cross-Country Database of Fiscal Space (2017, unknown): “For databases on government revenues, see Mansour (2014) and Prichard, Cobham, and Goodall (2014); for databases on government investment and consumption, see Ilzetzki, Mendoza, and Végh (2013).”
• Did Austerity Cause Brexit? (2019, unknown): “The magnitude of the multipliers and the distribution across sectors is quite consistent with those estimated when studying shocks to household disposable income (Ilzetzki et al., 2013).”