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Fiscal Multipliers and the State of the Economy

Fiscal Multipliers and the State of the Economy by Anja Baum
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Only a few empirical studies have analyzed the relationship between fiscal multipliers and the underlying state of the economy. This paper investigates this link on a country-by-country basis for the G7 economies (excluding Italy). Our results show that fiscal multipliers differ across countries, calling for a tailored use of fiscal policy. Moreover, the position in the business cycle affects the impact of fiscal policy on output: on average, government spending, and revenue multipliers tend to be larger in downturns than in expansions. This asymmetry has implications for the choice between an upfront fiscal adjustment versus a more gradual approach.
International Monetary Fund; December 2012
31 pages; ISBN 9781475523928
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Title: Fiscal Multipliers and the State of the Economy
Author: Anja Baum; Marcos Poplawski-Ribeiro; Anke Weber