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Fiscal multipliers in the 21st Century

Brinca, Pedro, Holter, Hans, Krusell, Per and Malafry, Laurence (2016) Fiscal multipliers in the 21st Century. Journal of Monetary Economics, 77. 53 - 69. ISSN 0304-3932

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Identification Number: 10.1016/j.jmoneco.2015.09.005

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.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-m...
Additional Information: © 2015 Elsevier B.V
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HB Economic Theory
Date Deposited: 13 Jul 2020 13:33
Last Modified: 16 Jul 2020 07:15
URI: http://eprints.lse.ac.uk/id/eprint/105629

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