Measuring the fiscal multiplier when plans take time to implement

Abstract

The paper describes how to measure the fiscal multiplier using budget statements on planned government spending in the current and following years alongside the data on actual outcomes. The multiplier effects can be decomposed to distinguish the effects of "?policy reactions' versus "?policy initiatives', with the latter shown to be substantially larger than the former in a study of annual US data over 1957-2016. It is noted that the fiscal initiatives undertaken following the events of 2007/2008 played an important role in mitigating the recessionary effects of the global financial crisis in the US. Show more