State dependence of fiscal multipliers: the source of fluctuations matters

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• dc.contributor.author Ghassibe, Mishel
• dc.contributor.author Zanetti, Francesco
• dc.date.accessioned 2022-11-04T10:59:51Z
• dc.date.embargoEnd info:eu-repo/date/embargoEnd/2024-11-01
• dc.date.issued 2022
• dc.description Includes supplementary materials for the online appendix.
• dc.description.abstract We develop a general theory of state-dependent fiscal multipliers in a framework featuring two empirically relevant frictions: idle capacity and unsatisfied demand. Our key novel finding is that the source of fluctuations determines the cyclicality of multipliers. Policies that stimulate demand, such as government spending, have multipliers that are large in demand-driven recessions, but small and possibly negative in supply-driven downturns. Conversely, policies that boost supply, such as cuts in payroll taxes, are ineffective in demand-driven recessions, but powerful if the downturn is supply-driven. Austerity, implemented by a reduction in government consumption, can be the policy with the largest multiplier in supply-side recessions and demand-driven booms, provided elasticities of labor demand and supply are sufficiently low. We obtain model-free empirical support for our predictions by developing a novel econometric specification that allows to estimate spending and tax multipliers in recessions and expansions, conditional on those being either demand- or supply-driven.
• dc.embargo.liftdate 2024-11-01
• dc.format.mimetype application/pdf
• dc.identifier.citation Ghassibe M, Zanetti F. State dependence of fiscal multipliers: the source of fluctuations matters. Journal of Monetary Economics. 2022 Nov;132:1-23. DOI: 10.1016/j.jmoneco.2022.09.003
• dc.identifier.doi http://dx.doi.org/10.1016/j.jmoneco.2022.09.003
• dc.identifier.issn 0304-3932
• dc.identifier.uri http://hdl.handle.net/10230/54696
• dc.language.iso eng
• dc.publisher Elsevier
• dc.relation.ispartof Journal of Monetary Economics. 2022 Nov;132:1-23. DOI: 10.1016/j.jmoneco.2022.09.003
• dc.rights © Elsevier http://dx.doi.org/10.1016/j.jmoneco.2022.09.003
• dc.rights.accessRights info:eu-repo/semantics/embargoedAccess
• dc.subject.keyword Business cycle
• dc.subject.keyword Fiscal multipliers
• dc.subject.keyword State dependence
• dc.subject.keyword Search in the goods market
• dc.title State dependence of fiscal multipliers: the source of fluctuations matters
• dc.type info:eu-repo/semantics/article
• dc.type.version info:eu-repo/semantics/acceptedVersion