Private Debt Overhang and the Government Spending Multiplier: Evidence for the United States

Marco Bernardini and Gert Peersman ()

No 5284, CESifo Working Paper Series from CESifo

Abstract: Using state-dependent local projection methods and historical U.S. data, we find that government spending multipliers are considerably larger in periods of private debt overhang. In particular, we find significant crowding-out of personal consumption and investment in low-debt states, resulting in multipliers that are significantly below one. Conversely, in periods of private debt overhang, there is a strong crowding-in effect, while multipliers are much larger than one. In high-debt states, more (less) government purchases also reduce (increase) the government debt-to-GDP ratio. These results are robust for the type of government spending shocks, and when we control for the business cycle, government debt overhang and the zero lower bound on the nominal interest rate. Our findings imply that spending multipliers were likely much larger than average during the Great Recession.

Keywords: government spending multipliers; drivers; private debt (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 N12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Private debt overhang and the government spending multiplier: Evidence for the United States (2018)
Working Paper: PRIVATE DEBT OVERHANG AND THE GOVERNMENT SPENDING MULTIPLIER: EVIDENCE FOR THE UNITED STATES (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5284

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