Cyclical Government spending theory and empirics Jordan Roulleau-Pasdeloup
By: Roulleau Pasdeloup, Jordan
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Material type: 
ArticlePublisher: 2021Subject(s): GASTO PUBLICO | CICLOS ECONOMICOS | EFECTO MULTIPLICADOR
In:
The Economic Journal v. 131, n. 640, November 2021, p. 3392–3416Summary: This paper shows that part of what is usually labelled discretionary government spending actually varies systematically over the cycle. I exploit the pervasive gap between ordinary least squares and two-stage least squares local government spending multipliers to estimate how cyclical the systematic part of government spending is. Estimating a structural open-economy New Keynesian model on United States state-level data, I find that when employment decreases by 1%, the systematic component of government spending decreases by 0.23%. I also find that the empirical specification in Nakamura and Steinsson, ‘Fiscal Stimulus in a monetary union’ (American Economic Review, 2014) does a good job in recovering the true impact multiplier effect, but that it overestimates the long-run cumulative effect.
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| OP 282/2021/639-2 Optimal taxation of families | OP 282/2021/640 The Economic Journal | OP 282/2021/640-1 The elasticity of taxable income | OP 282/2021/640-2 Cyclical Government spending | OP 282/2022/641 The Economic Journal | OP 282/2022/641-1 Who sells during a crash? | OP 282/2022/642 The Economic Journal |
Resumen.
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This paper shows that part of what is usually labelled discretionary government spending actually varies systematically over the cycle. I exploit the pervasive gap between ordinary least squares and two-stage least squares local government spending multipliers to estimate how cyclical the systematic part of government spending is. Estimating a structural open-economy New Keynesian model on United States state-level data, I find that when employment decreases by 1%, the systematic component of government spending decreases by 0.23%. I also find that the empirical specification in Nakamura and Steinsson, ‘Fiscal Stimulus in a monetary union’ (American Economic Review, 2014) does a good job in recovering the true impact multiplier effect, but that it overestimates the long-run cumulative effect.
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