Time-Varying Fiscal Spending Multipliers in the UK

52 Pages Posted: 3 Oct 2017 Last revised: 22 Mar 2018

Date Written: September 1, 2017


We study fiscal spending multipliers of the UK economy using a time-varying parameter factor augmented vector autoregressive (TVP-FAVAR) model. We show that government spending multipliers vary over time and that most of the variation is cyclical: multipliers are typically above one in recessions and below one in expansions. Regarding the drivers of the cyclical variations, our results are consistent with theories emphasizing the role of financial frictions and economic slack. We find no evidence that multipliers are larger at the zero lower bound. Structural factors seem to play a lesser role and multipliers do not exhibit a clear tread. We conclude that policy recommendations based on average multipliers that do not take into account the position of the economy in the cycle are potentially misleading and that the impact of government spending shocks is rather limited in the UK in non-recessionary periods.

Keywords: Government spending shocks, Fiscal transmission mechanism, Time-varying parameter models, Business cycle

JEL Classification: C32, E62, H30, H50

Suggested Citation

Glocker, Christian and Sestieri, Giulia and Towbin, Pascal, Time-Varying Fiscal Spending Multipliers in the UK (September 1, 2017). Banque de France Working Paper No. 643, Available at SSRN: https://ssrn.com/abstract=3046453 or http://dx.doi.org/10.2139/ssrn.3046453

Christian Glocker

Banque de France ( email )


Giulia Sestieri (Contact Author)

Banque de France ( email )


Pascal Towbin

Banque de France ( email )


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