How Big are Fiscal Multipliers in Latin America?

Abstract

This paper uses the strategy and data of Blanchard and Perotti (BP) to identify fiscal shocks and estimate fiscal multipliers for the United States. With these results, it computes the cumulative multiplier of Ramey and Zubairy (2018), now common in the literature. It finds that, contrary to the peak and through multipliers reported by BP, the cumulative tax multiplier is much larger than the cumulative spending one. Hence, the conclusions depend on the definition of multiplier. This methodology is also used to estimate the effects of fiscal shocks on economic activity in eight Latin American countries. The results suggest that the fiscal multipliers vary significantly across countries, and in some cases multipliers are larger than previously estimated.

Keywords: Tax revenue, Fiscal policy, Tax bases, National income accounts, Tax collection, Macroeconomic Policy, Stabilization, Multipliers, WP, e t, VAR, impulse response, Haver, government spend

JEL Classification: E6, E62, E01, H83, H2, K34