The young, the old, and the Government demographics and fiscal multipliers Henrique S. Basso, Omar Rachedi
By: Basso, Henrique S
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Contributor(s): Rachedi, Omar.
Material type: 
ArticlePublisher: 2021Subject(s): PRESUPUESTOS | GASTO PUBLICO | POLITICA FISCAL | POBLACION | ENVEJECIMIENTO | ESTADOS UNIDOS | EFECTO MULTIPLICADOR
In:
American Economic Journal : Macroeconomics v. 13, n. 4, October 2021, p. 110-141Summary: We document that government spending multipliers depend on the population age structure. Using the variation in military spending and birth rates across US states, we show that the local fiscal multiplier is 1.5 and increases with the population share of young people, implying multipliers of 1.1–1.9 in the interquartile range. A parsimonious life cycle open economy New Keynesian model with credit market imperfections and age-specific differences in labor supply and demand explains 87 percent of the relationship between local multipliers and demographics. The model implies that the US population aging between 1980 and 2015 caused a 38 percent drop in national government spending multipliers.
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We document that government spending multipliers depend on the population age structure. Using the variation in military spending and birth rates across US states, we show that the local fiscal multiplier is 1.5 and increases with the population share of young people, implying multipliers of 1.1–1.9 in the interquartile range. A parsimonious life cycle open economy New Keynesian model with credit market imperfections and age-specific differences in labor supply and demand explains 87 percent of the relationship between local multipliers and demographics. The model implies that the US population aging between 1980 and 2015 caused a 38 percent drop in national government spending multipliers.
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