Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing?

Using non-linear methods, this paper finds that existing estimates of government spending multipliers in expansion and recession may yield biased results by ignoring whether government spending is increasing or decreasing. For industrial countries,...

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Main Authors:	Riera-Crichton, Daniel, Vegh, Carlos A., Vuletin, Guillermo
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014
Subjects:	BUSINESS CYCLE BUSINESS CYCLES CENTRAL BANKS CONFIDENCE DEBT DEVELOPING COUNTRIES EMERGING MARKETS EXCHANGE RATE EXPANSIONARY IMPACT EXPANSIONARY POLICIES EXPANSIONARY POLICY FACE VALUE FISCAL POLICY FULL EMPLOYMENT GOVERNMENT EXPENDITURE GOVERNMENT SPENDING INTERNATIONAL BANK MACROECONOMIC POLICIES MONETARY ECONOMICS REMEDY TAX
Online Access:	http://documents.worldbank.org/curated/en/2014/07/19898940/fiscal-multipliers-recessions-expansions-matter-whether-government-spending-increasing-or-decreasing http://hdl.handle.net/10986/19389

id	okr-10986-19389
recordtype	oai_dc
spelling	okr-10986-193892021-04-23T14:03:52Z Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing? Riera-Crichton, Daniel Vegh, Carlos A. Vuletin, Guillermo BUSINESS CYCLE BUSINESS CYCLES CENTRAL BANKS CONFIDENCE DEBT DEVELOPING COUNTRIES EMERGING MARKETS EXCHANGE RATE EXPANSIONARY IMPACT EXPANSIONARY POLICIES EXPANSIONARY POLICY FACE VALUE FISCAL POLICY FULL EMPLOYMENT GOVERNMENT EXPENDITURE GOVERNMENT SPENDING INTERNATIONAL BANK MACROECONOMIC POLICIES MONETARY ECONOMICS REMEDY TAX Using non-linear methods, this paper finds that existing estimates of government spending multipliers in expansion and recession may yield biased results by ignoring whether government spending is increasing or decreasing. For industrial countries, the problem originates in the fact that, contrary to one's priors, it is not always the case that government spending is going up in recessions (i.e., acting countercyclically). In almost as many cases, government spending is actually going down (i.e., acting procyclically). Since the economy does not respond symmetrically to government spending increases or decreases, the "true" long-run multiplier for bad times (and government spending going up) turns out to be 2.3 compared to 1.3 if we just distinguish between recession and expansion. In the case of developing countries, the bias results from the fact that the multiplier for recessions and government spending going down (the "when-it-rains-it-pours" phenomenon) is larger than when government spending is going up. 2014-08-15T19:06:34Z 2014-08-15T19:06:34Z 2014-07 http://documents.worldbank.org/curated/en/2014/07/19898940/fiscal-multipliers-recessions-expansions-matter-whether-government-spending-increasing-or-decreasing http://hdl.handle.net/10986/19389 English en_US Policy Research Working Paper;No. 6993 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Group, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	BUSINESS CYCLE BUSINESS CYCLES CENTRAL BANKS CONFIDENCE DEBT DEVELOPING COUNTRIES EMERGING MARKETS EXCHANGE RATE EXPANSIONARY IMPACT EXPANSIONARY POLICIES EXPANSIONARY POLICY FACE VALUE FISCAL POLICY FULL EMPLOYMENT GOVERNMENT EXPENDITURE GOVERNMENT SPENDING INTERNATIONAL BANK MACROECONOMIC POLICIES MONETARY ECONOMICS REMEDY TAX
spellingShingle	BUSINESS CYCLE BUSINESS CYCLES CENTRAL BANKS CONFIDENCE DEBT DEVELOPING COUNTRIES EMERGING MARKETS EXCHANGE RATE EXPANSIONARY IMPACT EXPANSIONARY POLICIES EXPANSIONARY POLICY FACE VALUE FISCAL POLICY FULL EMPLOYMENT GOVERNMENT EXPENDITURE GOVERNMENT SPENDING INTERNATIONAL BANK MACROECONOMIC POLICIES MONETARY ECONOMICS REMEDY TAX Riera-Crichton, Daniel Vegh, Carlos A. Vuletin, Guillermo Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing?
relation	Policy Research Working Paper;No. 6993
description	Using non-linear methods, this paper finds that existing estimates of government spending multipliers in expansion and recession may yield biased results by ignoring whether government spending is increasing or decreasing. For industrial countries, the problem originates in the fact that, contrary to one's priors, it is not always the case that government spending is going up in recessions (i.e., acting countercyclically). In almost as many cases, government spending is actually going down (i.e., acting procyclically). Since the economy does not respond symmetrically to government spending increases or decreases, the "true" long-run multiplier for bad times (and government spending going up) turns out to be 2.3 compared to 1.3 if we just distinguish between recession and expansion. In the case of developing countries, the bias results from the fact that the multiplier for recessions and government spending going down (the "when-it-rains-it-pours" phenomenon) is larger than when government spending is going up.
format	Publications & Research :: Policy Research Working Paper
author	Riera-Crichton, Daniel Vegh, Carlos A. Vuletin, Guillermo
author_facet	Riera-Crichton, Daniel Vegh, Carlos A. Vuletin, Guillermo
author_sort	Riera-Crichton, Daniel
title	Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing?
title_short	Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing?
title_full	Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing?
title_fullStr	Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing?
title_full_unstemmed	Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing?
title_sort	fiscal multipliers in recessions and expansions : does it matter whether government spending is increasing or decreasing?
publisher	World Bank Group, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2014/07/19898940/fiscal-multipliers-recessions-expansions-matter-whether-government-spending-increasing-or-decreasing http://hdl.handle.net/10986/19389
_version_	1764443845490114560

Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing?

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