Fiscal Multipliers in Advanced and Developing Countries: Evidence from Military Spending

41 Pages Posted: 11 Apr 2019

See all articles by Viacheslav Sheremirov

Viacheslav Sheremirov

Federal Reserve Banks - Federal Reserve Bank of Boston

Sandra Spirovska

Federal Reserve Banks - Federal Reserve Bank of Boston, Research Assistant

Date Written: 2019-02-01

Abstract

Using novel data on military spending for 129 countries in the period 1988–2013, this paper provides new evidence on the effects of government spending on output in advanced and developing countries. Identifying government-spending shocks with an exogenous variation in military spending, we estimate one-year fiscal multipliers in the range 0.75-0.85. The cumulative multipliers remain significantly different from zero within three years after the shock. We find substantial heterogeneity in the multipliers across groups of countries. We then explore three potential sources leading to heterogeneous effects of fiscal policy: the state of the economy, openness to trade, and the exchange-rate regime. We find that the multipliers are especially large in recessions, in closed economies, and under a fixed exchange rate. We also discuss other potential reasons for heterogeneous effects of fiscal policy, such as its implementation and coordination with the monetary authority. This paper is a significantly revised and extended version of Federal Reserve Bank of Boston Working Papers No. 15-9, circulated under the title 'Output Response to Government Spending: Evidence from New International Military Spending Data.'

Keywords: fiscal policy, military spending, multiplier

JEL Classification: E32, E62, F44, H56, O23

Suggested Citation

Sheremirov, Viacheslav and Spirovska, Sandra, Fiscal Multipliers in Advanced and Developing Countries: Evidence from Military Spending (2019-02-01). FRB of Boston Working Paper No. 19-3. Available at SSRN: https://ssrn.com/abstract=3368530

Viacheslav Sheremirov (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Sandra Spirovska

Federal Reserve Banks - Federal Reserve Bank of Boston, Research Assistant ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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