Fiscal Multipliers and Time Preference

25 Pages Posted: 14 Nov 2015

See all articles by David Miles

David Miles

Imperial College Business School; The Bank of England; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Gilberto Marcheggiano

Goldman Sachs Group, Inc. - Goldman Sachs Asset Management

Date Written: January 01, 2013

Abstract

This paper explores the links between fiscal multipliers and household discount rates. We report evidence of a large and statistically significant relationship between reported rates of time preference across countries and the government expenditure multiplier. This study uses recent cross-country data on reported rates of time preferences gathered by Wang, Rieger and Hens (2011). We find that a higher reported rate of time preference is strongly associated with a larger government expenditure multiplier. Our findings may help to explain some of the differences in view over the optimal path for fiscal consolidation in Europe today, between the Germanic and Northern European countries (whose representatives appear to favour a faster fiscal retrenchment) and those in the South (who would like their required fiscal adjustment to occur less rapidly).

Suggested Citation

Miles, David Kenneth and Marcheggiano, Gilberto, Fiscal Multipliers and Time Preference (January 01, 2013). Bank of England Working Paper No. 39, Available at SSRN: https://ssrn.com/abstract=2689696 or http://dx.doi.org/10.2139/ssrn.2689696

David Kenneth Miles (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

The Bank of England ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Gilberto Marcheggiano

Goldman Sachs Group, Inc. - Goldman Sachs Asset Management ( email )

200 West Street
New York, NY 10282
United States

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