When is the fiscal multiplier high? A comparison of four business cycle phases

Berge, Travis, De Ridder, Maarten ORCID: 0009-0002-3550-2556 and Pfajfar, Damjan (2021) When is the fiscal multiplier high? A comparison of four business cycle phases. European Economic Review, 138. ISSN 0014-2921

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Abstract

This paper compares the effect of fiscal spending on economic activity across various phases of the business cycle. We show that the fiscal multiplier is higher when unemployment is increasing than when it is decreasing. Conversely, fiscal multipliers do not depend on whether the unemployment rate is above or below its long-term trend. This result emerges both in the analysis of long time-series at the U.S. national level as well as for a post-Vietnam War panel of U.S. states. Our findings synthesize previous, at times conflicting, evidence on the state-dependence of fiscal multipliers and imply that fiscal intervention early on in economic downturns is most effective at stabilizing output.

Item Type:	Article
Official URL:	https://www.journals.elsevier.com/european-economi...
Additional Information:	© 2021 Elsevier
Divisions:	Economics
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HB Economic Theory H Social Sciences > HJ Public Finance
Date Deposited:	30 Jul 2021 14:09
Last Modified:	23 Nov 2024 05:15
URI:	http://eprints.lse.ac.uk/id/eprint/111517

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