Stimulus Versus Austerity: The Asymmetric Government Spending Multiplier

28 Pages Posted: 12 May 2015

See all articles by Régis Barnichon

Régis Barnichon

International Monetary Fund (IMF)

Christian Matthes

Federal Reserve Bank of Richmond

Date Written: May 2015

Abstract

Despite intense scrutiny estimates of the government spending multiplier remain highly uncertain with values ranging from 0.5 to 2. While a fiscal consolidation is generally assumed to have the same (mirror-image) effect as a fiscal expansion, we show that relaxing this assumption is crucial to understanding the effects of fiscal policy. The government spending multiplier is substantially below 1 for fiscal expansions, but the multiplier is substantially above 1 for fiscal consolidations.

Keywords: fiscal policy, Gaussian Mixture Approximation

JEL Classification: C32, E62

Suggested Citation

Barnichon, Régis and Matthes, Christian, Stimulus Versus Austerity: The Asymmetric Government Spending Multiplier (May 2015). CEPR Discussion Paper No. DP10584. Available at SSRN: https://ssrn.com/abstract=2605019

Régis Barnichon (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Christian Matthes

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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