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Fiscal Multipliers in the 21st Century
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
Stockholm University, Faculty of Social Sciences, Department of Economics.
2016 (English)In: Journal of Monetary Economics, ISSN 0304-3932, E-ISSN 1873-1295, Vol. 77, 53-69 p.Article in journal (Refereed) Published
Abstract [en]

Fiscal multipliers appear to vary greatly over time and space. Based on VARs for a large number of countries, we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers. In an attempt to account for this finding, we develop a life-cycle, overlapping-generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of OECD economies, including the distribution of wages and wealth, social security, taxes, and government debt and study how a fiscal multiplier depends on various country characteristics. We find that the fiscal multiplier is highly sensitive to the fraction of the population who face binding credit constraints and also to the average wealth level in the economy. These findings together help us generate a cross-country pattern of multipliers that is quite similar to that in the data.

Place, publisher, year, edition, pages
2016. Vol. 77, 53-69 p.
Keyword [en]
Fiscal multipliers, Wealth inequality, Government spending, Taxation
National Category
URN: urn:nbn:se:su:diva-125206DOI: 10.1016/j.jmoneco.2015.09.005ISI: 000372388700005OAI: diva2:892091
"Inequality, Institutions, and Redistribution", held at the Stern School of Business, New York University, April 24-25, 2015
Available from: 2016-01-08 Created: 2016-01-08 Last updated: 2016-04-25Bibliographically approved

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Krusell, PerMalafry, Laurence
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