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Regime-Dependent Fiscal Multipliers in the United States

Author

Listed:
  • Gilles Dufrénot

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

  • Aurélia Jambois
  • Laurine Jambois
  • Guillaume Khayat

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract
This paper proposes a regime-dependent model to estimate fiscal multipliers in the US. Output, consumption and investment are assumed to respond to tax and spending changes in a nonlinear manner. Fiscal multipliers are time-varying because their size and sign depend upon the state of the economy (upturns and downturns). Keynesian effects appear essentially during downturns, while anti-Keynesian effects are observed during expansions. Transfer payments contributes to a higher private consumption when they are given to consumers in bad times. Reducing taxes boosts consumption in good times. Investment responds positively to lower taxes during downturns, but negatively in the upturn regime. Our results thus suggest that Keynesian effects have been associated to expansionary policies during recessions, while anti-Keynesian effects were observed during expansions illustrating situations of expansionary fiscal consolidation. The effectiveness of fiscal positive impulses increases in downturns relative to upturns. A corollary is therefore that austerity measures during recessions would have detrimental effects on the GDP and its components.

Suggested Citation

  • Gilles Dufrénot & Aurélia Jambois & Laurine Jambois & Guillaume Khayat, 2016. "Regime-Dependent Fiscal Multipliers in the United States," Post-Print hal-01447865, HAL.
    • Handle: RePEc:hal:journl:hal-01447865
    DOI: 10.1007/s11079-016-9410-3
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    More about this item

    Keywords

    Anti-Keynesian effects; Fiscal multipliers; Keynesian effects; Regime-dependent;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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