Fiscal Multipliers and Informality
Title | Fiscal Multipliers and Informality PDF eBook |
Author | Emilio Colombo |
Publisher | International Monetary Fund |
Pages | 73 |
Release | 2022-05-06 |
Genre | Business & Economics |
ISBN |
This paper investigates the role of informality in affecting the magnitude of the fiscal multiplier in a panel of 141 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the fiscal multiplier. This result holds irrespective of the levels of economic development and institutional quality and is robust to additional country characteristics such as trade, financial openness and exchange rate regime. In a two-sector new- Keynesian model, we rationalize this result by showing that fiscal shocks raise the relative price of official goods, shifting demand towards the informal sector. This reallocation effect increases with the level of informality, because a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks. Thus, informality raises the size of the unofficial multiplier. A higher degree of non-separability between public and private goods also contributes to rationalize the lower multipliers in high-informality countries.
Estimating Fiscal Multipliers with Correlated Heterogeneity
Title | Estimating Fiscal Multipliers with Correlated Heterogeneity PDF eBook |
Author | Emmanouil Kitsios |
Publisher | International Monetary Fund |
Pages | 51 |
Release | 2016-02-04 |
Genre | Business & Economics |
ISBN | 1484397371 |
We estimate the average fiscal multiplier, allowing multipliers to be heterogeneous across countries or over time and correlated with the size of government spending. We demonstrate that this form of nonseparable unobserved heterogeneity is empirically relevant and address it by estimating a correlated random coefficient model. Using a panel dataset of 127 countries over the period 1994-2011, we show that not accounting for omitted heterogeneity produces a significant downward bias in conventional multiplier estimates. We rely on both crosssectional and time-series variation in spending shocks, exploiting the differential effects of oil price shocks on fuel subsidies, to identify the average government spending multiplier. Our estimates of the average multiplier range between 1.4 and 1.6.
Getting Into the Nitty-Gritty of Fiscal Multipliers: Small Details, Big Impacts
Title | Getting Into the Nitty-Gritty of Fiscal Multipliers: Small Details, Big Impacts PDF eBook |
Author | José Federico Geli |
Publisher | International Monetary Fund |
Pages | 50 |
Release | 2023-02-10 |
Genre | Business & Economics |
ISBN |
Despite the remarkable progress the literature has made throughout the past years in studying fiscal multipliers, estimates still vary considerably across studies. Partly, estimates differ because of context-specific variables that affect multipliers, but also because of the lack of a standardized framework to calculate and report them, making comparisons among studies hard to make. In this paper, we use a large panel of countries to study how some important methodological details affect the empirical estimates. Focusing on emerging economies, we show how slight changes in the filtering approach of fiscal forecast errors or the accumulation procedure of responses can significantly impact estimates. We emphasize that one of the most important features of estimating multipliers is the endogenous dynamic responses of fiscal variables to fiscal shocks, and therefore we argue against reporting multipliers as simply the output response to exogenous fiscal innovations. Although our baseline results are in line with the previous studies, our standardized framework allow us to make fairer comparisons of multiplier estimates across budgetary items and country income groups.
How Big (Small?) are Fiscal Multipliers?
Title | How Big (Small?) are Fiscal Multipliers? PDF eBook |
Author | Ethan Ilzetzki |
Publisher | International Monetary Fund |
Pages | 68 |
Release | 2011-03-01 |
Genre | Business & Economics |
ISBN | 1455218022 |
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 fisscal 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.
Fiscal Multipliers and the State of the Economy
Title | Fiscal Multipliers and the State of the Economy PDF eBook |
Author | Ms.Anja Baum |
Publisher | International Monetary Fund |
Pages | 31 |
Release | 2012-12-05 |
Genre | Business & Economics |
ISBN | 1475565828 |
Only a few empirical studies have analyzed the relationship between fiscal multipliers and the underlying state of the economy. This paper investigates this link on a country-by-country basis for the G7 economies (excluding Italy). Our results show that fiscal multipliers differ across countries, calling for a tailored use of fiscal policy. Moreover, the position in the business cycle affects the impact of fiscal policy on output: on average, government spending, and revenue multipliers tend to be larger in downturns than in expansions. This asymmetry has implications for the choice between an upfront fiscal adjustment versus a more gradual approach.
A Simple Method to Compute Fiscal Multipliers
Title | A Simple Method to Compute Fiscal Multipliers PDF eBook |
Author | Nicoletta Batini |
Publisher | International Monetary Fund |
Pages | 33 |
Release | 2014-06-09 |
Genre | Business & Economics |
ISBN | 1498314694 |
Fiscal multipliers are important tools for macroeconomic projections and policy design. In many countries, little is known about the size of multipliers, as data availability limits the scope for empirical research. For these countries, we propose a simple method—dubbed the “bucket approach”—to come up with reasonable multiplier estimates. The approach bunches countries into groups (or “buckets”) with similar multiplier values, based on their characteristics. It also takes into account the effect of some temporary factors, such as the state of the business cycle.
Fiscal Multipliers
Title | Fiscal Multipliers PDF eBook |
Author | Martin Schindler |
Publisher | INTERNATIONAL MONETARY FUND |
Pages | 14 |
Release | 2009-05-20 |
Genre | |
ISBN | 9781462372737 |