Skip to main content
SpringerLink
Log in

The Fiscal Multiplier

  • Chapter
  • First Online:
Macroeconomic Policy after the Crash

  • 513 Accesses

Abstract

One of the central questions that this section of the book tries to answer is whether the decision by many of the world’s finance ministries to embrace austerity in the aftermath of the financial crash was wise or not. In order to answer that question we need to think about the likely impact of fiscal consolidation on aggregate demand and employment. This chapter reviews theory and evidence on the likely impact of changes in the fiscal stance in normal times. The following chapter will discuss whether the conventional wisdom in normal times applies in a crisis.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 64.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 84.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Aschauer, D. (1989). Is public expenditure productive? Journal of Monetary Economics, 23(2), 177–200.

    Article  Google Scholar 

  • Barro, R. (1974). Are government bonds net wealth. Journal of Political Economy, 82, 1095–1117.

    Article  Google Scholar 

  • Barro, R. (1996). Reflections on Ricardian equivalence. NBER Working Paper 5502.

    Google Scholar 

  • Barro, R., & Redlick, C. (2009). Macroeconomic effects from government purchases and taxes, NBER Working Paper 15369.

    Google Scholar 

  • Barro, R., & Redlick, C. (2011). Macroeconomic effects from government purchases and taxes. Quarterly Journal of Economics, 126(1), 51–102.

    Google Scholar 

  • Barsky, R., Mankiw, N., & Zeldes, S. (1986). Ricardian consumers with Keynesian propensities. American Economic Review, 76(4), 676–691.

    Google Scholar 

  • Barwell, R. (2007). The macroeconomic impact of international migration. Bank of England Quarterly Bulletin, Q1, 48–59.

    Google Scholar 

  • Barwell, R. (2013). Macroprudential policy: Taming the wild gyrations of credit flows, debt stocks and asset prices. New York: Palgrave.

    Book  Google Scholar 

  • Baumol, W., & Peston, M. (1955). More on the multiplier effects of a balanced budget. American Economic Review, 45(1), 140–148.

    Google Scholar 

  • Baxter, M., & King, R. (1993). Fiscal policy in general equilibrium. American Economic Review, 83(3), 315–334.

    Google Scholar 

  • Bernanke, B. (1983). Irreversibility, uncertainty, and cyclical investment. Quarterly Journal of Economics, 98(1), 85–106.

    Article  Google Scholar 

  • Bernheim, B., & Bagwell, K. (1988). Is everything neutral? Journal of Political Economy, 5, 75–122.

    Google Scholar 

  • Blanchard, O., & Quah, D. (1989). The dynamic effects of aggregate demand and supply disturbances. The American Economic Review, 79(4), 655–673.

    Google Scholar 

  • Blanchard, O., & Perotti, R. (2002). An empirical characterization of the dynamic effects of changes in government spending and taxes on output. Quarterly Journal of Economics, 117, 1329–1368.

    Article  Google Scholar 

  • Blundell, R., & MaCurdy, T. (1999). Labor supply: A review of alternative approaches. In O. Ashenfelter & D. Card (Eds.), Handbook of labor economics (Vol. 3, pp. 1559–1695). Amsterdam: North-Holland.

    Google Scholar 

  • Blundell, R., Meghir, C., & Neves, P. (1993). Labor supply and intertemporal substitution. Journal of Econometrics, 59(2), 137–160.

    Article  Google Scholar 

  • Broadbent, B. (2011, September 26). Rebalancing and the real exchange rate. Speech.

    Google Scholar 

  • Buiter, W., & Tobin, J. (1979). Debt neutrality: A brief review of doctrine and evidence. In G. Furstenberg (Ed.), Social security versus private saving. Cambridge, MA: Ballinger Pub. Co.

    Google Scholar 

  • Clark, T., Elsby, M., & Love, S. (2001). Twenty-five years of falling investment. IFS Briefing Note 20.

    Google Scholar 

  • Cribb, J., Disney, R., & Sibieta, L. (2014a). The public sector workforce. IFS Briefing Note 145.

    Google Scholar 

  • Cribb, J., Emmerson, C., & Sibieta, L. (2014b). Public sector pay in the UK. IFS Report R97.

    Google Scholar 

  • Diamond, P. (1965). National debt in a neoclassical growth model. American Economic Review, 55(5), 1126–1150.

    Google Scholar 

  • Dixit, A. (1992). Investment and hysteresis. Journal of Economic Perspectives, 6, 107–132.

    Article  Google Scholar 

  • Evans, G., Honkapohja, S., & Mitra, K. (2009). Anticipated fiscal policy and adaptive learning. Journal of Monetary Economics, 56, 930–953.

    Article  Google Scholar 

  • Feldstein, M., & Horioka, C. (1980). Domestic savings and international capital flows. Economic Journal, 90, 314–329.

    Google Scholar 

  • Finn, M. (1998). Cyclical effects of governments’ employment and good purchases. International Economic Review, 39(3), 635–657.

    Article  Google Scholar 

  • Floden, M. (2001). The effectiveness of government debt and transfers as insurance. Journal of Monetary Economics, 48, 81–108.

    Article  Google Scholar 

  • Frankel, J. (1985). International capital mobility and crowding out in the U.S. economy: Imperfect integration of financial markets or of goods markets? NBER Working Paper 1773.

    Google Scholar 

  • Friedman, B. (1978). Crowding out or crowding in? Economic consequences of financing government deficits. Brookings Papers on Economic Activity, 3, 593–641.

    Article  Google Scholar 

  • Gali, J., LĂłpez-Salido, D., & VallĂ©s, J. (2007). Understanding the effects of government spending on consumption. Journal of the European Economic Association, 5(1), 227–270.

    Article  Google Scholar 

  • Hood, A., & Johnson, P. (2014, November 4). What is welfare spending? IFS Observations.

    Google Scholar 

  • Hood, A., & Oakley, L. (2014). A survey of the GB benefit system. IFS Briefing Note BN13.

    Google Scholar 

  • Johnson, D., Parker, J., & Souleles, N. (2006). Household expenditure and the Income Tax Rebates of 2001. American Economic Review, 96(5), 1589–1610.

    Article  Google Scholar 

  • Judd, K. (1987). Debt and distortionary taxation in a simple perfect foresight model. Journal of Monetary Economics, 20(1), 51–72.

    Article  Google Scholar 

  • Keynes, J. (1936). The general theory of employment, interest and money. London: Palgrave.

    Google Scholar 

  • Killingsworth, M., & Heckman, J. (1987). Female labor supply: A survey. In O. Ashenfelter & R. Layard (Eds.), Handbook of labor economics (Vol. 1, pp. 103–204). Amsterdam: Elsevier.

    Google Scholar 

  • Koo, R. (2003). Balance sheet recession: Japan’s struggle with uncharted economics and its global implications. Singapore: Wiley.

    Google Scholar 

  • Kotlikoff, L. (1988). Intergenerational transfers and savings. Journal of Economic Perspectives, 2(2), 41–58.

    Article  Google Scholar 

  • Kotlikoff, L., Samuelson, W., & Johnson, S. (1988). Consumption, computation mistakes, and fiscal policy? American Economic Review, 78(2), 408–412.

    Google Scholar 

  • Leeper, E., Walker, T., & Yang, S.-C. (2008). Fiscal foresight: Analytics and econometrics. NBER Working Paper 14028.

    Google Scholar 

  • McKay, A., & Reis, R. (2014). The role of automatic stabilizers in the U.S. business cycle. mimeo.

    Google Scholar 

  • Monacelli, T., & Perotti, R. (2008). Openness and the sectoral effects of fiscal policy. Journal of the European Economics Association, 6(2–3), 395–403.

    Article  Google Scholar 

  • Oh, H., & Reis, R. (2012). Targeted transfers and the fiscal response to the great recession. Journal of Monetary Economics, 59, S50–S64.

    Article  Google Scholar 

  • Parker, J. (1999). The reaction of household consumption to predictable changes in social security taxes. American Economic Review, 89(4), 959–973.

    Article  Google Scholar 

  • Pencavel, J. (1987). Labor supply of men: A survey. In O. Ashenfelter & R. Layard (Eds.), Handbook of labor economics (Vol. 1, pp. 3–102). Amsterdam: North-Holland.

    Google Scholar 

  • Perotti, R. (2005). Estimating the effects of fiscal policy in OECD countries. Conference Proceedings of Federal Reserve Bank of San Francisco.

    Google Scholar 

  • Pindyck, R. (1991). Irreversibility, uncertainty, and investment. Journal of Economic Literature, 29, 1110–1148.

    Google Scholar 

  • Ramey, V. (2009). Identifying government spending shocks: It’s all in the timing. mimeo.

    Google Scholar 

  • Ramey, V., & Shapiro, M. (1998). Costly capital reallocation and the effects of government spending. Carnegie-Rochester Conference Series on Public Policy, 48, 145–194.

    Article  Google Scholar 

  • Reis, R. (2006). Inattentive consumers. Journal of Monetary Economics, 53(8), 1761–1800.

    Article  Google Scholar 

  • Ricci, L., Milesi-Ferretti, G., & Lee, L. (2008). Real exchange rates and fundamentals: A cross-country perspective. IMF Working Paper 08/13.

    Google Scholar 

  • Romer, C., & Romer, D. (2010). The macroeconomic effects of tax changes. American Economic Review, 100, 763–801.

    Article  Google Scholar 

  • Romer, C., & Romer, D. (2014). Transfer payments and the macroeconomy. mimeo.

    Google Scholar 

  • Rotemberg, J., & Woodford, M. (1997). An optimization-based econometric framework for the evaluation of monetary policy. NBER Macroeconomics Annual, 12, 297–361.

    Article  Google Scholar 

  • Samuelson, P. (1939). Interactions between the multiplier analysis and the principle of acceleration. Review of Economics and Statistics, 21(2), 75–78.

    Article  Google Scholar 

  • Shapiro, M., & Slemrod, J. (1995). Consumer response to the timing of income: Evidence from a change in tax withholding. American Economic Review, 85(1), 274–283.

    Google Scholar 

  • Souleles, N. (1999). The response of household consumption to income tax refunds. American Economic Review, 89(4), 947–958.

    Article  Google Scholar 

  • Tetlow, G. (2013, May 8).Cutting the deficit. IFS Observations.

    Google Scholar 

  • Wallich, H. (1944). Income-generating effects of a balanced budget. Quarterly Journal of Economics, 59(1), 78–91.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. BNP Paribas Investment Partners, Dartford, UK

    Richard Barwell

Authors
  1. Richard Barwell
    View author publications

    You can also search for this author in PubMed Google Scholar

Copyright information

© 2016 The Author(s)

About this chapter

Cite this chapter

Barwell, R. (2016). The Fiscal Multiplier. In: Macroeconomic Policy after the Crash . Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-51592-6_11

Download citation

  • DOI: https://doi.org/10.1057/978-1-137-51592-6_11

  • Published:

  • Publisher Name: Palgrave Macmillan, London

  • Print ISBN: 978-1-137-51591-9

  • Online ISBN: 978-1-137-51592-6

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation