Desperate Times Call for Desperate Measures: Government Spending Multipliers in Hard Times

13 Pages Posted: 2 Oct 2019

See all articles by Youngki Shin

Youngki Shin

Department of Economics

Sokbae Lee

Seoul National University

Yuan Liao

Rutgers, The State University of New Jersey - New Brunswick/Piscataway

Myung Hwan Seo

Seoul National University - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 19, 2019

Abstract

We investigate state-dependent effects of fiscal multipliers and allow for endogenous sample splitting to determine whether the US economy is in a slack state. When the endogenized slack state is estimated as the period of the unemployment rate higher than about 12 percent, the estimated cumulative multipliers are significantly larger during slack periods than non-slack periods and are above unity. We also examine the possibility of time-varying regimes of slackness and find that our empirical results are robust under a more flexible framework. Our estimation results points out the importance of the heterogenous effects of fiscal policy.

Keywords: fiscal policy, threshold regression, recession

JEL Classification: C32, E62, H20, H62

Suggested Citation

Shin, Youngki and Lee, Sokbae and Liao, Yuan and Seo, Myung Hwan, Desperate Times Call for Desperate Measures: Government Spending Multipliers in Hard Times (September 19, 2019). Available at SSRN: https://ssrn.com/abstract=3458473 or http://dx.doi.org/10.2139/ssrn.3458473

Youngki Shin (Contact Author)

Department of Economics ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

HOME PAGE: http://sites.google.com/site/yshin12

Sokbae Lee

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Yuan Liao

Rutgers, The State University of New Jersey - New Brunswick/Piscataway ( email )

94 Rockafeller Road
New Brunswick, NJ 08901
United States

HOME PAGE: http://rci.rutgers.edu/~yl1114

Myung Hwan Seo

Seoul National University - School of Economics ( email )

San 56-1, Silim-dong, Kwanak-ku
Seoul 151-742

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