Government spending multipliers in contraction and expansion

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Qazizada, W ; Stockhammer, Engelbert (2014)
  • Publisher: Faculty of Arts and Social Sciences, Kingston University
  • Subject: economics | Fiscal multiplier, fiscal policy, panel analysis, output contraction | Fiscal multiplier; fiscal policy; panel analysis; output contraction
    • jel: jel:E62 | jel:C36

This paper investigates the impact of government spending on output and the size of the spending multiplier during periods of output contraction vs. expansion. It also investigates the impact of spending when the economy hits the nominal zero lower bound. It uses a panel of 21 advanced countries over the period of 1979-2011, applying a TSLS estimation technique. We find a spending multiplier of close to 1 during expansion and values of up to 3 during contractions. However, our results do not indicate a difference in the impact of spending during nominal zero lower bound periods.
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    5 The countries are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, United Kingdom, and United States.

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