Why Do Fiscal Multipliers Depend on Fiscal Positions?
The fiscal position can affect fiscal multipliers through two channels. Through the Ricardian channel, households reduce consumption in anticipation of future fiscal adjustments when fiscal stimulus is implemented from a weak fiscal position. Throu...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/696521553109989507/Why-Do-Fiscal-Multipliers-Depend-on-Fiscal-Positions http://hdl.handle.net/10986/31432 |
| Summary: | The fiscal position can affect fiscal
multipliers through two channels. Through the Ricardian
channel, households reduce consumption in anticipation of
future fiscal adjustments when fiscal stimulus is
implemented from a weak fiscal position. Through the
interest rate channel, fiscal stimulus from a weak fiscal
position heightens investors' concerns about sovereign
credit risk, raises economy-wide borrowing cost, and reduces
private domestic demand. The paper documents empirically the
relevance of these two channels using an Interactive Panel
Vector Auto Regression model. It finds that fiscal
multipliers tend to be smaller when fiscal positions are
weak than strong. |
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