Simple Analytics and Empirics of the Government Spending Multiplier and Other "Keynesian" Paradoxes

46 Pages Posted: 8 Mar 2010 Last revised: 5 Sep 2010

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Date Written: March 2010

Abstract

Factor supply increases (depresses) output for many of the same reasons that the government spending multiplier might be less (greater) than one. Data from three 2008-9 recession episodes - the labor supply shifts associated with the seasonal cycle, the 2009 federal minimum wage hike, and the collapse of residential construction spending - clearly show that markets absorb an increased supply of factors of production by increasing output. The findings contradict the "paradox of toil" and suggest that the government spending multiplier is less than one, even during the recession.

Suggested Citation

Mulligan, Casey B., Simple Analytics and Empirics of the Government Spending Multiplier and Other "Keynesian" Paradoxes (March 2010). NBER Working Paper No. w15800. Available at SSRN: https://ssrn.com/abstract=1565900

Casey B. Mulligan (Contact Author)

University of Chicago ( email )

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