ON FISCAL MULTIPLIERS: ESTIMATES FROM A MEDIUM SCALE DSGE MODEL

Authors

  • SARAH ZUBAIRY

    Corresponding author
    1. Texas A&M University, U.S.A.
    2. Bank of Canada, Canada
    • Please address correspondence to: Sarah Zubairy, Texas A&M University, 4228 TAMU, College Station, TX, U.S.A. E-mail: szubairy@tamu.edu

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    • I am especially indebted to Stephanie Schmitt-Grohé and Barbara Rossi for their guidance, support and encouragement. I would also like to thank the editor, Jesus Fernandez-Villaverde and two anonymous referees for their insightful comments, and Francesco Bianchi, Craig Burnside, Vasco Curdia, Marco Del Negro, Gauti Eggertsson, Cosmin Ilut, Kent Kimbrough, Juan Rubio-Ramirez, and Andrea Tambalotti for helpful discussions. Part of this article was completed while I was visiting the Federal Reserve Bank of New York, and their hospitality is gratefully acknowledged. The views expressed in this article are those of the author. No responsibility should be attributed to the Bank of Canada.


Abstract

This article contributes to the debate on fiscal multipliers, in the context of an estimated dynamic stochastic general equilibrium model, featuring a rich fiscal policy block and a transmission mechanism for government spending shocks. I find the multiplier for government spending to be 1.07, which is largest on impact. The multipliers for labor and capital tax on impact are 0.13 and 0.34, respectively. The effects of tax cuts take time to build and exceed stimulative effects of spending by 12–20 quarters. I carry out counterfactual exercises to show how alternative financing methods and expected monetary policy have consequences for the size of fiscal multipliers.

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