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Abstract:

cover
CEP Discussion Paper
How Big (Small?) are Fiscal Multipliers?
Ethan Ilzetzki, Enrique G. Mendoza and Carlos A. Végh
October 2010
Paper No' CEPDP1016:
Full Paper (pdf)

JEL Classification: E2; E6; F41; H5


Tags: government expenditure; macroeconomic policy

We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.