Structural determinants of fiscal multipliers 

01 January 2016 → 31 December 2019
Research Foundation - Flanders (FWO)
Research disciplines
  • Social sciences
    • Macroeconomic policy, macroeconomic aspects of public finance and general outlook
fiscal multipiers
Project description

The Great Recession and the European sovereign debt crisis have reignited the academic and political debate on the role of fiscal stimulus packages for business cycle stabilization, as well as the macroeconomic consequences of austerity policies. Whereas the debate previously focused mainly on the average size of so-called fiscal multipliers, i.e. the dollar response of economic activity to an exogenous dollar increase or decrease in government purchases or taxes, the current debate centers more on the question whether fiscal multipliers differ according to the state of the economy. In particular, fiscal multipliers are not structural constants, and may depend on a number of conditions that vary across countries and time. From a theoretical perspective, multipliers may for instance depend on monetary policy (e.g. the presence of the zero lower bound on nominal interest rates), the business cycle (recessions versus expansions), the amount of credit-constrained borrowers, the exchange rate regime, and the level of government debt. In the context of the debates and the policy responses to the crisis, it is thus very important to better understand the determinants of the multipliers, as well as their macroeconmic relevance. The aim of this project is to empirically detect the structural determinants of fiscal multipliers, and implement the results in a theoretical framework.