Fiscal multipliers in the 21st century
License
Access Rights
Cadmus Permanent Link
Full-text via DOI
ISBN
ISSN
0304-3932; 1873-1295
Issue Date
Type of Publication
LC Subject Heading
Other Topic(s)
EUI Research Cluster(s)
Initial version
Published version
Succeeding version
Preceding version
Published version part
Earlier different version
Initial format
Citation
Journal of monetary economics, 2016, Vol. 77, pp. 53-69
Cite
BRINCA, Pedro, HOLTER, Hans A., KRUSELL, Per, MALAFRY, Laurence, Fiscal multipliers in the 21st century, Journal of monetary economics, 2016, Vol. 77, pp. 53-69 - https://hdl.handle.net/1814/61510
Abstract
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. (C) 2015 Elsevier B.V. All rights reserved.