Locally financed and outside financed regional fiscal multipliers

Locally financed and outside financed regional fiscal multipliers

The size of regional fiscal multipliers determines the efficacy of fiscal stimulus, the costs of fiscal austerity and whether countercyclical fiscal policy is more effective at the federal or local level. This paper studies fiscal multipliers in regions of a monetary union—US states, Eurozone member...

Full description

Bibliographic Details
Main Author: Pennings, Steven
Format: Journal Article
Language:en_US
Published: Elsevier 2022
Subjects:
FISCAL MULTIPLIER
NEW KEYNESIAN MODEL
MONETARY UNION
FISCAL FEDERALISM
LOCAL FINANCE
Online Access:http://hdl.handle.net/10986/37277
id okr-10986-37277
recordtype oai_dc
spelling okr-10986-372772022-04-09T05:10:38Z Locally financed and outside financed regional fiscal multipliers Pennings, Steven FISCAL MULTIPLIER NEW KEYNESIAN MODEL MONETARY UNION FISCAL FEDERALISM LOCAL FINANCE The size of regional fiscal multipliers determines the efficacy of fiscal stimulus, the costs of fiscal austerity and whether countercyclical fiscal policy is more effective at the federal or local level. This paper studies fiscal multipliers in regions of a monetary union—US states, Eurozone members, or countries with a hard exchange-rate peg—and how multipliers are affected by the way spending is financed: local deficit financing, local tax financing or outside financing (federal or foreign aid). I present analytical and quantitative government purchase and transfer multipliers using a New Keynesian model consistent with estimated transfer multipliers in Pennings (2021), focusing on the persistence of the fiscal shock. I find that at business-cycle frequencies, financing has little effect on impact multipliers: outside-financed multipliers are only about 0.07–0.16 larger than local deficit-financed multipliers. This suggests efforts to enable local countercyclical fiscal policy may be a partial substitute for greater fiscal centralization or foreign financing. 2022-04-08T08:07:27Z 2022-04-08T08:07:27Z 2022-04 Journal Article Economics Letters 0165-1765 http://hdl.handle.net/10986/37277 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Elsevier Journal Article
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language en_US
topic FISCAL MULTIPLIER
NEW KEYNESIAN MODEL
MONETARY UNION
FISCAL FEDERALISM
LOCAL FINANCE
spellingShingle FISCAL MULTIPLIER
NEW KEYNESIAN MODEL
MONETARY UNION
FISCAL FEDERALISM
LOCAL FINANCE
Pennings, Steven
Locally financed and outside financed regional fiscal multipliers
description The size of regional fiscal multipliers determines the efficacy of fiscal stimulus, the costs of fiscal austerity and whether countercyclical fiscal policy is more effective at the federal or local level. This paper studies fiscal multipliers in regions of a monetary union—US states, Eurozone members, or countries with a hard exchange-rate peg—and how multipliers are affected by the way spending is financed: local deficit financing, local tax financing or outside financing (federal or foreign aid). I present analytical and quantitative government purchase and transfer multipliers using a New Keynesian model consistent with estimated transfer multipliers in Pennings (2021), focusing on the persistence of the fiscal shock. I find that at business-cycle frequencies, financing has little effect on impact multipliers: outside-financed multipliers are only about 0.07–0.16 larger than local deficit-financed multipliers. This suggests efforts to enable local countercyclical fiscal policy may be a partial substitute for greater fiscal centralization or foreign financing.
format Journal Article
author Pennings, Steven
author_facet Pennings, Steven
author_sort Pennings, Steven
title Locally financed and outside financed regional fiscal multipliers
title_short Locally financed and outside financed regional fiscal multipliers
title_full Locally financed and outside financed regional fiscal multipliers
title_fullStr Locally financed and outside financed regional fiscal multipliers
title_full_unstemmed Locally financed and outside financed regional fiscal multipliers
title_sort locally financed and outside financed regional fiscal multipliers
publisher Elsevier
publishDate 2022
url http://hdl.handle.net/10986/37277
_version_ 1764486873464438784

Similar Items